‘Govt halts plan to join global bond indexes, defers Euroclear’

The news caused the rupee to retreat further from its seven-month high of 60.5925 to the dollar hit in early trade.

India has put on ice plans to join major emerging market bond indexes that would require removal of restrictions on capital inflows, two sources said, taking a decision that knocked the rupee, but showed balance of payments concerns were easing.

A separate plan to explore joining Euroclear, the world’s largest securities settlement system, has also been deferred until the next government takes charge after elections in April and May. That plan could have further opened up the market to portfolio capital inflows.

Finance minister P Chidambaram and Reserve Bank of India governor Raghuram Rajan initiated talks with index compilers including JP Morgan in the hope of attracting billions of investment dollars after the rupee tumbled to a record low last August.

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“The plan for joining global bond indices has virtually been dumped over differences of abolishing investment limits on FIIs (foreign institutional investors) in government bonds,” a senior official with direct knowledge of the matter said.

Confirming the failure of talks, a second official said: “As regards the issue of India’s plan to enter into JP Morgan debt index and other global indices, no action is being envisaged.”

The news caused the rupee to retreat further from its seven-month high of 60.5925 to the dollar hit in early trade. The rupee dropped almost 20 paise after the news to hit the day’s low of 60.94, versus Monday’s 60.85.

Traders said they were hoping the inclusion plans would materialise sometime over the next year if not immediately, but as they have been put on hold, the wait would likely be longer.

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“This has been put on hold till the time we get a new government, so nothing major as of now. All eyes are on election results,” said Anubhuti Sahay, economist at Standard Chartered Bank.