India Ready to Tackle ‘Hot Money’ on Index Entry, Official Says

(Bloomberg) -- India has all the policy options to deal with any volatile foreign flows after the addition of its bonds to global indexes, according to a top Finance Ministry official.

“Anything that would be enough to create domestic volatility” will be monitored, Finance Secretary TV Somanathan said in an interview in New Delhi Friday, referring to concerns around excessive flows from India’s index entry. The government will take “whatever action” is needed “to prevent hot money from coming in.”

India’s inclusion into JPMorgan Chase & Co.’s emerging index is likely to bring a gush of foreign inflows, that may lead to volatility in the currency and bond markets. The nation’s $1 trillion bond market is likely to get about $40 billion of inflows on inclusion, according to some estimates.

What JPMorgan Adding India to Its EM Bond Index Means: QuickTake

Inflows have already started coming in ahead of June inclusion. Overseas investors have plowed more than 500 billion rupees ($6 billion) into the index-eligible debt since the inclusion announcement in September. HSBC Asset Management sees India’s bonds getting $100 billion of inflows in the coming years.

“We don’t want the Indian economy to be controlled by unknown foreign factors, which we have no control over,” Somanathan said, without specifying the policy options. “Domestic control of macro economic parameters is a key policy focus for us.”

Indian bonds are headed for their best week in more than a year, with yields on the benchmark 10-year note falling by 13 basis points to 7.04%. Besides the inflows, a lower-than-expected borrowing plan for the next financial year has also fueled the gains. 

Here’s more from the interview: 

• Somanathan hit back at rating companies for not considering an upgrade despite India’s plan to rein in its budget deficit to 5.1% of the gross domestic product
  • Read More: India’s Budget Adequate for Ratings Upgrade, Top Adviser Says
• India’s debt is moderate relative to its future expected growth, he said. “I do not believe that our debt-to GDP is high compared to our peers”

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