Sovereign bonds: How raising debt from overseas markets may help in maintaining fiscal prudence

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Published: July 10, 2019 11:54:52 AM

After Chief Economic Advisor (CEA) Krishnamurthy Subramanian, Principal Economic Advisor with the Finance Ministry, Sanjeev Sanyal too has batted for the government’s move on the issuance of sovereign bonds.

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)The total sovereign debt for India stood at .38 billion, or 3.8 per cent of GDP, at the end of March 2019. (Representational image)

After Chief Economic Advisor (CEA) Krishnamurthy Subramanian, Principal Economic Advisor with the Finance Ministry, Sanjeev Sanyal too has batted for the government’s move on the issuance of sovereign bonds. Supporting Subramanian’s view, Sanjeev Sanyal said Tuesday that the low-cost debt from the external market would largely reduce the crowding out effect in the domestic debt market and help maintain fiscal prudence.

Adding, he said that the government is mulling over a plan to have sovereign benchmark such as the London interbank offered rate (Libor) by the coming September. “The sovereign benchmark will be useful for raising borrowings abroad and it will be announced later in the year by the government”, news agency PTI reported citing Sanjeev Sanyal as saying on the sidelines of annual general meeting of the Indian Chamber of Commerce.

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The total sovereign debt for India stood at $10.38 billion, or 3.8 per cent of GDP, at the end of March 2019. In this budget, the government targets a gross borrowing numbers of Rs 7.10 lakh crore. However, the government plans to borrow bulk of its requirements in rupees from domestic sources.

Adding, principal economic advisor said that 90 per cent of the country’s fiscal deficit is owing to interest payout and the primary deficit (minus deficit) is just 0.3 per cent. There is a need for the cost of capital to go down since India aspires to be an investment-driven economy, which should be 35 per cent of the GDP.

Meanwhile, in the budget presented on July 5, Finance Minister Nirmala Sitharaman had proposed to raise funds from the foreign markets, a first for India, to meet its borrowing targets in the ongoing fiscal. While the majority of experts have supported the move, they have also cautioned the government to properly study currency risks associated with it.

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