5 min readNew DelhiUpdated: Jul 31, 2026 08:06 PM IST
Despite the best efforts of the government and the Reserve Bank of India (RBI), Bloomberg Index Services Ltd (BISL) on Friday again deferred the inclusion of Indian government bonds into its Bloomberg Global Aggregate Index, saying the announced reforms need to be “fully reflected in day-to-day market practice” before such a decision is made.
Coming more than six months after its last update, the latest deferral will disappoint the bond market that has seen improvement in foreign investments after a raft of measures were announced on June 5 to make Indian government bonds – issued by the Centre to borrow money and bridge the gap between its income and expenditure – more attractive to foreign investors.
In its statement, BISL said the Indian government bond market continues to make “meaningful progress toward meeting the global standards expected for inclusion”. However, market players told BISL during its discussions that they would like to see the changes become “more firmly established in day-to-day market practice”.
“While automated trading capabilities continue to expand, respondents noted that implementation has not yet been fully completed across all major investor regions. In addition, a number of respondents indicated they would like to see further evidence that recent market reforms translate into more efficient operational workflows, including improvements to account opening and onboarding processes for foreign investors,” BISL said.
The Ministry of Finance did not immediately respond to a request for comment.
Over the last couple of years, Indian government debt has been added to so-called global bond indices. This began with JPMorgan adding India to its emerging market index beginning June 2024. Subsequently, Bloomberg included India in its Emerging Market Local Currency Index from January 2025 and FTSE Russell to a similar one from September 2025.
Becoming a part of these bond indices is crucial to attracting passive investment flows; several global funds track the weight a certain country has in these bond indices and invest accordingly. India’s inclusion into the JPMorgan and Bloomberg emerging market index brought in billions of dollars of foreign money into the Indian government debt market, helping lower the interest paid by the Centre on its borrowings as demand for its bonds picked up due to these foreign buyers.
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The government has made a concerted pitch for its bonds to be made a part of the Bloomberg Global Aggregate Index, with the removal of capital gains tax as well as the withholding tax on investment by foreign investors in government bonds announced on June 5 squarely aimed to achieve this objective.
In its statement Friday, BISL said that as the Bloomberg Global Aggregate Index is the flagship index, it is “appropriate that any inclusion decision be supported not only by regulatory and market structure reforms, but also by demonstrated operational efficiency across the diverse range of investors that track and benchmark against the index”. As such, “additional time is warranted” before a decision is made.
Economists think the addition of Indian sovereign debt into the Bloomberg Global Aggregate Bond Index could lead to inflows of $20 billion-$30 billion over 10 months. This would have been invaluable at a time when a combination of global trade uncertainty, geopolitical conflicts, and India’s lack of exposure to the global AI investment boom has seen foreign capital exit domestic markets in droves, driving the rupee sharply lower.
The rupee nearly touched the 97-per-dollar mark in mid-May. On Friday, it closed at 95.39, with investor sentiment improving since the June 5 measures, which included concessional swap windows for banks and companies to raise money from abroad. A total of $32 billion has so far come in under this swap window.
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To be sure, Foreign Portfolio Investors (FPIs) have also invested more over the last two months, at least in government bonds.
According to latest data, net FPI investment over June-July in the so-called Fully Accessible Route (FAR) category of bonds – in which foreigners can invest freely – has been $2.6 billion as against $1.6 billion in the first five months of 2026.
FPI investment in all government bonds during June and July has been $7.8 billion on a net basis compared to just $926 million in the preceding five months. This helped lower government bond yields sharply in the last two months by more than 20 basis points (bps).
Lower bond yields reduce the government’s cost of borrowing from the market to meet its fiscal deficit.
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While FPIs have put money into bonds, they have withdrawn from equity markets to the tune of $27 billion so far in 2026.