Govt acknowledges risks on overseas sovereign bonds; says issue size not likely to be humongous

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Published: August 1, 2019 6:58:47 PM

Even as the discussion on the issuance of sovereign overseas bond continues, the government has acknowledged the risks associated with it.

The funds raised thus can flow out of fixed deposit to the SPV if the public buys the bonds, it said, adding this will not have an impact on bank deposits or credit growth. (Representational image)In the budget 2019, Finance Minister Nirmala Sitharaman had budgeted its FY20 gross market borrowing at Rs 7.10 lakh crore.

Even as the discussion on the issuance of sovereign overseas bond continues, the government has acknowledged the risks associated with it, global news agency Reuters reported citing an unidentified government official. The government is in consultation and working on the operational details of the plan, he said, adding the first overseas sovereign issue size is not expected to be humongous. He also said that the government will meet its tax revenue collection target for the fiscal year 2020.

In the budget 2019, Finance Minister Nirmala Sitharaman had budgeted its FY20 gross market borrowing at Rs 7.10 lakh crore. The media reports said that the government expects nearly one-tenth or $10 billion to come through the overseas bond issuance. The government has called it a part of diversification of resource mobilisation so as to leave more scope for the private sector to raise funds from the market. Interestingly, former economic affairs secretary Subhash Chandra Garg was recently transferred to the Power Ministry, even as the proposal on the overseas sovereign bond still waits to find some ground. The recent transfer of Subhash Chandra Garg added to the speculations of a review of its contours either by the government or the central bank.

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Since the government came out with the proposal in the budget 2019, several experts including former Reserve Bank of India (RBI) Governor Raghuram Rajan have raised questions on the programme. The PM-EAC member Rathin Roy even asked for a white paper on the same issue. Even Swadeshi Jagaran Manch, an affiliate of RSS, has also opposed the idea of the government to sell the bonds in foreign currency.

What is a sovereign bond?

A government bond or sovereign bond is debt issued by a government, generally with a promise to pay periodic interest payments called coupon payments and to repay the face value on the maturity date.

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