This is in reference to the editorial ?Sovereign strength? (FE, July 27). Sovereign bond issues have served as a viable financial instrument for smoothing out humps of mismatch in the balance of payments in nations? economies. However, the eurozone economic crises that cascaded across nearly every member state has brought in newer perspectives. Economists now look at not only the quantity of debt issued by governments, but key economic indices as well?viz the price of government debt (as bonds are trade-able they reflect the rate of inflation), the nominal interest rate and the level of the stock market. Global economic downturn and the pains of the PIIGS group, post 2008, have since placed the debt/GDP ratio as a preeminent factor. As a thumb rule, debt at 80-90% of GDP seems to crowd out economic activity. Of particular concern is that the foreign debt component being highly volatile in globally linked economies tends to abruptly skew exchange rates. Hence any correlation between high debt and low growth must predicate on whether the government debt itself is a risk. Our mulling over the issue of sovereign bonds comes at a time when our non-resident holding of government debt is low even amongst the fiscally better positioned BRIC bloc in the global economy. Should we be able to push through these bonds at a time when rupee is weak, we stand to redeem them in a subsequent phase of an improved economy and a stronger level of the rupee. Both these would favourably impact the risk assessment of these bonds. Maybe the bonds need to have a higher coupon value, but then we must have the will to regain growth within their period of redemption. A study of economies with different mixes of interest rates, stock market levels, debt/GDP ratios and inflation rates show that the crux of the issue lies not so much in debt per se as in a healthy GDP.
R Narayanan
Ghaziabad
Mid-day meal murder
In an unfortunate incident many schoolkids died after eating adulterated and poisonous food in Bihar. The person in charge, if any, should be taken to talk, even the school authorities should be held responsible for the tragedy. In future, all cooked ready-to-eat food must be approved by a responsible and technical person in each school. NGOs or volunteers can help on this. Alternatively, the responsibility of such school kitchens can be given to a third party. Food prepared by such other parties to whom the kitchen work is outsourced should be regularly tested and if the food is found to be lacking in nutrition or in terms of hygiene, such companies should be penalised with hefty fines and other appropriate legal actions should be taken against them.
Mahesh Kumar
New Delhi