In today’s weekly report, we discuss the increasing financial repression faced by Indian fixed income investor.
The table below shows the nominal yields on 3-year Indian Government Bonds at the end of each year, and also the actual CPI inflation reported during the completed life of those bonds. Thus, for a row corresponding to Dec 2001, we have considered inflation for Dec 2001 to Dec 2004 period.
The above table shows the level of financial repression faced by the Indian bond investors. From a comfortable 4.4% positive real yield at the start of the decade, the situation has turned worse at a steady pace, with a negative 3.8% real yield at the end of the decade (2007-2010).
This financial repression has helped India lower its ratio of declared Central Government Debt to GDP from 68% at the start of the decade to 53% now. However, the perverse effect of this repression will be felt some time in the future.