Bimal Jalan backs Modi’s sovereign bonds after Raghuram Rajan, others diss it

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July 25, 2019 4:35 PM

Former RBI governors C. Rangarajan and Raghuram Rajan have viewed the plan with skepticism, with the latter saying foreign currency debt has no real benefit and is fraught with risks.

bimal jalan, former rbi governor bimal jalan, rbiFormer Reserve Bank of India Governor Bimal Jalan (File photo)

India’s decision to sell its maiden overseas sovereign bond has been panned by at least two former central bank chiefs, but the government’s plan has just found support in another ex-governor who thinks it’s a good idea. Former Reserve Bank of India Governor Bimal Jalan joined the debate on whether or not the nation should go for an offshore bond sale, saying India’s fundamentals supported the case for going ahead with the fundraising.

“At the moment we are in a fortunate position. Our debt to GDP ratio is not very high, the exchange rate is stable, and foreign exchange reserves are high,” Jalan said in an interview in New Delhi on Wednesday. “So foreign borrowing, if it’s long term, which it would be, is not a problem.”

Former RBI governors C. Rangarajan and Raghuram Rajan have viewed the plan with skepticism, with the latter saying foreign currency debt has no real benefit and is fraught with risks — a view echoed by two ex-deputy governors. Prime Minister Narendra Modi is facing resistance from other quarters as well: an ally of his Bharatiya Janata Party described it as “dangerous,” while one of his advisers said he has “grave concerns” about the debt sale.

Critics of the borrowing plan have pointed to India’s current-account deficit, which makes the nation reliant on foreign inflows and vulnerable to swings in investor sentiment and the currency. Many have cited the experience of Latin American countries that issued sovereign bonds and ended up creating liabilities.

“Debt of Latin American countries was very high compared to ours,” said Jalan, who is currently heading a panel to study the transfer of RBI’s surplus capital to the government. “Our growth rate is good, investment is good, technology is good. So I have a positive view.”

India is considering an option to raise $10 billion in one go from its first overseas bond sale as early as October, people with knowledge of the matter said earlier. The central bank is in agreement with the plan to raise debt overseas, they said.

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