Developing India’s Offshore Local Currency Bond Market: Lessons from Emerging Countries

After the 2008 financial crisis, macroeconomic positions and growth prospects weakened in the advanced economies; emerging market economies (EMEs) improved however. Offshore, local-currency bonds of EMEs became popular as result, with many EMEs exploiting the opportunity. India also launched its rupee-denominated bond (masala bond) abroad in 2013, seeking to cultivate this channel for domestic infrastructure financing, while mitigating currency risks. Although still nascent, masala bonds have generated tremendous interest amongst issuers and investors. Market growth and development is challenged though by several issues, notably lacking liquidity and depth. This paper takes stock. It assesses the current market state and structure, surveys a cross-section of market participants to identify the relevant issues, and employs two case studies of EME peers, China and Brazil, to learn from their
respective paths and experiences in similar regard. The paper concludes by listing the key essentials for future growth and long-term sustainability of the masala bond market and its emergence as a viable avenue for infrastructure financing.