The government is sticking to its Budget 2019 announcement of raising debt overseas via a sovereign bond. However, official sources in finance ministry say the details of the proposed sovereign bond are yet to be worked out.
With barely two months to go before the government comes out with the second half borrowing calendar, officials indicate it is still not clear whether the overseas foreign currency bond will be part of the government’s FY20 borrowing plan.
A finance ministry official said: “Discussions on the mechanics of sovereign bond are yet to start. We cannot say at this stage whether a sovereign bond will be part of current fiscal borrowing.”
Some of the operational details regarding the sovereign overseas bond will include the quantum, tranche, tenure, currency and the markets to borrow from, all of which have still to be discussed within the government.
Interestingly, finance minister Nirmala Sitharaman's July 5 Union Budget speech did not indicate a specific timeline for the overseas sovereign debt issuance.
Sitharaman in her Budget speech said: “India’s sovereign external debt to GDP [gross domestic product] is among the lowest globally at less than 5 percent. The government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market.”
Officials also cautioned that the government needs to prepare and factor in the macro economic implications of a sovereign overseas issuance. An official observed: “We need to be ready for all fall outs, including distortions that a sovereign bond issuance may bring”.
CNBC-TV18 earlier reported that the debut overseas debt raising plan of the Narendra Modi government has also been opposed by its right wing affiliates Swadeshi Jagran Manch and the Rashtriya Swayamsevak Sangh.
The sovereign bond proposal has also been sharply criticised by Rathin Roy, member of Prime Minister Economic Advisory Council, and former Reserve Bank of India governors C Rangarajan, YV Reddy, Raghuram Rajan and former director genereal of the RBI Rakesh Mohan, to name a few.However, former RBI governor and head of the RBI panel on the economic capital framework, Bimal Jalan, has supported the government's move.