Editor's Take: Latha Venkatesh explains pros and cons of government borrowing overseas

Finance minister Nirmala Sitharaman, in her maiden budget speech on Friday,  said that the government would borrow in foreign currency to finance the budget deficit.

Currently, the country's external debt is low and it will now start to borrow a part of its funding requirement from the overseas market in foreign currency, the finance minister said.

As of now, the government largely borrows locally, with only around 5 percent of its debt foreign. Supporters of this move say that even though India’s fiscal deficit is one of the highest in the world, it has never had teething finance issues.

The government’s action to look overseas for funds is driven by the lower interest rates overseas. But the move potentially makes the country’s finances vulnerable.

SC Garg, secretary of finance, however, clarified on foreign borrowing proposal, saying only 10-15 percent of it will be raised from sovereign bonds.

 

CNBC-TV18's Latha Venkatesh explains the pros and cons of the move...