The Finance Ministry may go slow on the contentious Budget proposal to issue overseas sovereign bonds with officials maintaining that no timeline has been set so far for the bond issue.
“We are yet to decide a timeline or tranches for the bond issue. What is more important is that we have shown our willingness to borrow overseas through the Budget announcement. The intention is more important,” a Finance Ministry official said seeking anonymity.
Finance Minister Nirmala Sitharaman in her maiden Budget speech on July 5, proposed to issue offshore sovereign bonds, starting from the current fiscal year.
“India’s sovereign external debt to GDP 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 a beneficial impact on demand situation for the government securities in the domestic market,” Sitharaman said.
Subhash Chandra Garg, finance secretary at the time had said in a post-Budget interview that the government plans to borrow a maximum 10 percent of its gross domestic borrowing or around $10 billion.
“We should also take advantage of the lower interest rates. If we have dollar-rupee depreciation in the historical range and believe that the growth story will remain strong, we can hope for a more stable rupee going forward,” he said.
However, after Garg was shifted to the Power Ministry in a surprise move, there has been uncertainty about the future of the plan, especially with growing opposition to it.
In an interview with Economic Times on July 27, Sitharaman, however, denied speculations that the Prime Minister’s Office has asked the finance ministry to review the proposal.
The plan has been criticised by many former Reserve Bank of India governors like Raghuram Rajan and YV Reddy but supported by Bimal Jalan. While supporters have drawn attention to the loans available at very low-interest rates, critics have pointed to the currency risk involved with overseas borrowing.
India Ratings said in a report earlier this month that sovereign borrowing in foreign currency against the backdrop of moderating household savings and easy global liquidity appears to be a very attractive option for meeting the Union government’s funding requirement.