Peanuts or premium?

"JP Morgan has made a significant decision to include India in the Government Bond Index-Emerging Markets (GBI-EM) index after nearly two years of monitoring." TOI. "India's inclusion in this prominent and widely-followed bond index will lower its borrowing costs and attract passive investments of approximately $30 billion into the domestic debt." "This development is also likely to stabilize the Indian rupee, reduce interest rates, lower bond yields, and subsequently reduce the cost of borrowing which will be a boost for the bottomline of companies." The promised "Amrit Kaal" (TOI) is almost here. Who knew that an American bank will be the agent? $30 billion is peanuts. "Economists and brokerages estimate this move will drive inflows as much as $40 billion over the next 18-21 months." Mint. Double peanuts. "Investors have about $2 trillion of funds available to invest, and about $100 billion to $150 billion of that is focused on India, according to Anu Aiyengar, JP Morgan Chase and Co's global head of mergers and acquisitions." TOI. 'It never rains but it pours.' But, who wants dollars? Not India. "Beyond rendering monetary policy ineffective, a high degree of dollarisation also results in loss of seigniorage, balance sheet risks, higher possibility of liquidity crises, and other financial risks." ORF. "India is trying to develop and implement systems that can bypass the dollar and strengthen the INR, particularly by entering into agreements with multiple nations to settle trade in domestic currencies." Still, "With domestic savings in a slump, exports flagging and import bills looking heavy, that's clearly good news. We need all the inflows we can get." Mint. But, foreign investors will demand a higher degree of discipline from India. "The Center would have to credibly abide by its fiscal glide path (rather relaxed though it already is), even as the Reserve Bank of India tightens up on inflation control for the sake of basic currency stability." Which is a polite way of saying that the government will have to stop throwing money to engineer growth so that it can boast about being the fastest growing economy. "The finance ministry...exuded confidence that the country will achieve 6.5 percent growth in FY24 on the back of improved corporate profitability, private capital formation and bank credit growth notwithstanding the risks of rising crude oil prices and monsoon deficit." ET. And the RBI will have to stop grinning at soaring inflation, because that weakens the rupee (RI), and maintain a "yield premium these bonds offer over US Treasury bills." Which means that yields on Indian government bonds must be attractively higher than yields on US Treasuries plus a premium for the fall in the value of the rupee against the dollar. The rupee has fallen from about 60 to the dollar in 2014 to over 83 to the dollar today. TC. Despite the RBI selling dollars to support the rupee. ET. It is good that JP Morgan likes our bonds. But, could it be too much of a good thing?