NEW DELHI - The cost of capital in Indian bond markets is reasonable and is expected to come down "even further" with India's inclusion in JPMorgan's bond index, chief economic adviser V. Anantha Nageswaran said on Friday.

JPMorgan announced the inclusion of India's government securities in its widely tracked emerging market debt index on Friday, a move that's expected to pour in billions of dollars into Asia's third largest economy.

There is potential for currency appreciation when the index inclusion starts to happen, and investors' demand for Indian government securities start to rise, Nageswaran told reporters.

India's bond inclusion will start on June 28, 2024, and extend over 10 months with 1% increments on its index weighting, as India is expected to reach the maximum weighting of 10%.

Nageswaran said estimates suggest foreign inflows of $20-26 billion into the country, and that increases the sensitivity of its domestic policy.

The Indian government has not made any adjustments to its tax policy for the inclusion of its bonds, he said.

The government's stance on issues including capital gains taxes and local settlement has delayed its inclusion on global bond indices for years.

(Reporting by Nikunj Ohri, Editing by William Maclean)