When is the inclusion of Indian bonds in global indices likely to take off?

JP Morgan and other indices have promised to include Indian bonds in the bond indices, inducing a lot of passive flows into Indian bonds. However, the delay is due to the ambiguity on the treatment of capital gains of overseas investors. While the overseas investors are seeking waiver of capital gains tax, the Indian government is not too enthused by the idea. In fact, it is also OK to delay getting its bonds included in global bond indexes. The process had been initiated in 2019, but had been delayed due to the pandemic.

Under the extant rules on bonds, overseas investors in such bonds are required to pay a short-term capital gains tax of 30% if a listed bond is sold within 12 months. The government's insistence on capital gains tax has kind of delayed the process. The index inclusion was supposed to bring in billions of dollars from the passive funds that buy the index components without getting into stock allocation.

The government is clear that there was no rationale to tax local citizens and not tax overseas investors. It was against the principles of natural justice.