Market analyst Deepak Shenoy said the Reserve Bank of India's push for a large-scale bond issuance programme is a positive development for the nation.
These strategic shifts in the debt market are intended to attract more foreign capital and support long-term financing needs. By increasing the scale of issuance and reducing tax burdens, India aims to position its bonds as more attractive alternatives to other global sovereign debt instruments.
Shenoy said these developments in an interview with Moneycontrol in March 2024 [1]. He said that the RBI is aggressively pursuing a bond-issuance plan and may consider removing the capital-gain tax for foreign institutional investors (FIIs) [1]. This move would address a significant barrier that currently makes investing in Indian bonds difficult for international entities [2].
"It's good stuff for the long term," Shenoy said regarding the RBI's bond push [1]. He said that altering the tax structure would fundamentally change the appeal of the market for global players.
According to Shenoy, the removal of capital-gain tax on FIIs would make Indian bonds more globally competitive [2]. This competitiveness is essential for the RBI to maintain a steady flow of foreign investment, and manage the long-term financing requirements of the Indian economy.
The analyst said that the current tax environment creates friction for foreign investors. By eliminating these hurdles, India can better integrate its debt markets with global financial systems, a move that aligns with the RBI's broader goals of market modernization and liquidity improvement.
“"It's good stuff for the long term,"”
The proposed shift toward tax relief for foreign institutional investors signifies a strategic effort by the RBI to transition the Indian bond market from a domestic-centric system to a globalized asset class. If implemented, these changes would likely lower the cost of borrowing for the government by diversifying the investor base and reducing reliance on domestic banks.
