Why?
There is a serious underestimation of the risks involved in the internationalisation of bond markets and currencies of emerging economies.
Approach:
- Introduce your answer with the decision by J.P. Morgan and Bloomberg to include Indian local currency government bonds (LCGBs) in their respective global indices.
- In the main body, highlight the potential benefits, including enhanced foreign investment, reduced borrowing costs, more diversified investor base, etc. Next, discuss the potential vulnerabilities, such as exposure to global volatility, risk of capital flight, loss of monetary policy autonomy, etc.
- Conclude by emphasizing the need for a balanced approach to safeguard India’s economic stability and sovereignty.
