New Delhi: The Finance Ministry is preparing the required groundwork for likely raising a part of the gross borrowing program in overseas markets in external currencies, sources said.
The proposal is under examination and necessary groundwork has been initiated, an internal implementation paper of the Finance Ministry over Budget decisions stated.
If at all the government decides to go for it, it can possibly only happen in the next fiscal with a small amount, but the proposal just can not be completely erased, sources said. This was a Budget proposal, so preparing ground work for examining its probability is very much likely.
In 2019-20 Budget announcement, Finance Minister Nirmala Sitharaman had announced the proposal 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%. The government would start raising a part of its gross borrowing program in external markets in external currencies. This will also have a beneficial impact on demand situation for the government securities in the domestic market," she had said during the Budget announcement.
But the announcement led to a series of advisories from experts and ex-RBI governors, including Raghuram Rajan and Y.V. Reddy, denouncing the proposal saying India's plan to issue foreign currency debt has no real benefit and is fraught with risks.
After that the Finance Ministry went slow on the contentious budget proposal to issue overseas sovereign bonds with no timeline has been set so far for the bond issue. Former RBI Governor Bimal Jalan had, however, supported the proposal.
The then Finance Secretary Subhash Chandra Garg had said in post-Budget interview that the government could borrow a maximum 10% 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 believing that the growth story will remain strong, we can hope for a more stable rupee going forward," he had said.
Afterwards he was shifted to power ministry giving rise to speculation that the proposal led to his exit.
Sources said India's external debt burden is very low. For raising the investment rate in the economy, there is a need to increase foreign borrowings to take advantage of lower rate of interest abroad.
The Finance Ministry position on this is: "Owing to strong macroeconomic fundamentals including a manageable current account deficit, India's external debt to GDP ratio has been low at about 20 per cent of GDP during the last three years. As per IMF and World Bank data, India's external debt to Gross National Income (GNI) ratio in 2018 was lowest among the advanced nations of G-20 and 36 OECD (Organization for Economic Cooperation and Development) countries. India's external debt to GNI ratio was also lower than two-thirds of around 150 low and middle income countries. Further, India's external debt per citizen in 2018 was less than all G-20 and OECD countries," they said.
India Ratings had 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 requirements.
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