What Are GDP-Linked Bonds – Free PDF Download

• The priority for India is to ensure that it overcomes the COVID-19 pandemic and
• Kick-starts GDP growth rather than fix the weaknesses in the macroeconomy.
• Be it high fiscal deficit and government indebtedness.

WHAT SHOULD BE GOVERNMENT’S STRATEGY?

• Its financing strategy should be to raise-
• Long-term funds at cost effective rates, with flexible repayment terms that allow it to take  tactical advantage of market movements.
• The GoI may issue listed, Indian rupee denominated,
• 30-year GDP-linked bonds that are callable from, say, the fifth year.

WHAT IS A BOND?

• A bond is a fixed income instrument that represents a loan made by an investor to a borrower.

WHAT ARE GDP-LINKED BONDS?

• The coupon (interest) on a GDP-linked bond is correlated to the GDP growth rate.
• The issuer, the GoI, is liable to pay a lower coupon during years of slower growth and vice-versa.

CALLABLE FEATURE OF THE BOND

• A callable bond allows the issuer to pay off their debt early.

LISTING OF BONDS

• The listing of bonds provides investors an exit option.
• Costa Rica, Bulgaria and Bosnia-Herzegovina issued the first pure GDP-linked bonds in the
• Usually government issue such bonds during slowdown or recession.
• Argentina and Greece issued warrant-like instruments similar to GDP-linked bonds in 2005 and 2012 

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