“S&P Global Report: India Could Garner $20-40 Billion Initially, Surging to $180 Billion in a Decade

India’s ambitious aspiration of securing a spot for its government securities in major global bond indices faces a significant hurdle due to its capital gains tax regime, as highlighted by a recent report by S&P Global. The report suggests that the potential benefits, including a substantial influx of foreign investment, might be hindered by the existing tax framework.

Capital Gains Tax Impact: According to the S&P Global report, India’s capital gains tax structure poses a substantial challenge to the inclusion of government bonds in prominent global indices. This tax framework could deter foreign investors from considering Indian bonds as part of their portfolios, despite the allure of higher yields.

Potential Financial Impact: The report underlines that if India successfully overcomes these tax-related barriers and secures the inclusion of its government bonds in major bond indexes, the nation could experience a notable surge in foreign investments. Initial estimates suggest an influx of $20-40 billion could be anticipated. Moreover, over the next decade, this figure could skyrocket to an impressive $180 billion, demonstrating the substantial economic potential at stake.

Global Indices’ Inclusion Benefits: Inclusion in global bond indices is a coveted achievement for any nation, as it not only reflects the attractiveness of its financial instruments but also opens the doors to increased capital flows. Countries that find representation in these indices often experience enhanced investor confidence, improved liquidity, and greater access to global funds.

Long-Term Growth Prospects: While the challenges posed by the capital gains tax regime are evident, experts point out that overcoming these hurdles could lead to transformative long-term benefits for India’s economy. The substantial infusion of foreign funds could bolster various sectors, foster economic growth, and contribute to job creation.

Policy Considerations: The S&P Global report underscores the need for a comprehensive review of India’s capital gains tax framework to align it with international standards and ensure the nation’s financial instruments remain attractive to foreign investors. Policymakers are urged to carefully evaluate the potential impact of any revisions on investment inflows and economic growth.

 India’s ambition to have its government bonds included in major global bond indices holds the promise of significant economic gains. However, the S&P Global report emphasizes the urgency of addressing the hurdles presented by the capital gains tax regime. A strategic and well-balanced approach to tax reforms could pave the way for increased foreign investments, propelling India toward a trajectory of sustainable economic growth and global financial integration.