India opens government bonds for individual buyers: 10 points

India raised Rs 7.02 trillion between April and September largely from institutional investors

New Delhi:
India today opened its $1 trillion government bond market to individual investors as it seeks public help to fund its ambitious spending plans.

Here’s your 10-point cheatsheet for this big story:

  1. Asia’s third-largest economy is planning to borrow Rs 12.05 trillion through bonds this fiscal year ending March 2022, as it embarks on major investment plans to boost growth amid the pandemic.

  2. Prime Minister Narendra Modi said today that the new scheme “allows the smallest investor to participate in the country’s economic progress”.

  3. “Small investors will be assured good returns on safe investments and the government will get necessary resources for infrastructure development and building a new India,” PM Modi said.

  4. Governments in developed economies have long allowed individuals to invest in bonds, which typically offer lower returns than other investments but are considered safer.

  5. India follows other emerging market countries such as Brazil, the Philippines and Bangladesh in easing public access to its sovereign bond market.

  6. Before Friday, individual investors in India could only buy government bonds through mutual funds and other indirect facilities. Now they can invest up to Rs 10,000 in them directly through the accounts of the central bank.

  7. Bond experts see this as a significant step forward from India’s expected inclusion in the global bond market index early next year, which should help the government raise more money from foreign investors.

  8. “If we are going to allow a lot of foreign investment in the bond market, we must balance it with domestic investors as well, to give us more stability,” said Srinivasan MV of Mekalai Financial.

  9. India raised Rs 7.02 lakh crore between April and September largely from institutional investors.

  10. But analysts remain uncertain about the appetite for low-interest long-term government bonds at a time when global central banks are tightening monetary policy to tackle rising inflation. “(Hunger) may not come up immediately. It may take some time,” Srinivasan said.

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