India to stay alert for ‘hot money’ after bond index inclusion: official

India will monitor foreign fund flows after inclusion in JPMorgan's index to prevent currency and bond market volatility.

India will monitor flows of foreign funds after its inclusion into JPMorgan’s emerging market debt index and take steps to avoid ‘hot money’ that can trigger volatility in currency and bond markets, a senior government official said.

“We will keep monitoring it. And when necessary, steps will be taken,” T. V. Somanathan, a senior Finance Ministry official told Reuters in an interview.

The aim will be to “prevent volatility or volatile inflows” but “never” to restrict outflows, Mr. Somanathan said, adding all possibilities are open to keep volatility in check.

However, any talk about measures right now is “hypothetical.”

Last year, JPMorgan announced it will include some Indian bonds in the Government Bond Index-Emerging Markets and its index suite from June, which could lead to incremental inflows of around $23 billion.

Foreign investment in Indian government bonds jumped in the last three months, when investors bought securities worth ₹446 billion ($5.37 billion).

Mr. Somanathan said the government’s main concern with index investors was that some of these longer-term investors “come in passively and leave passively” and the exit does not always reflect economic conditions on the ground.