After Raghuram Rajan expressed apprehensions over foreign sovereign bonds, another former RBI Governor D Subbarao has cautioned the government about the same. Even though the dollar bonds are useful in small doses, they can turn out to be addictive, CNBC TV18 reported citing D Subbarao as saying. However, the former central bank governor also shared certain benefits of issuing overseas debt. There are advantages, benefits and costs associated with the overseas debt, he noted. The biggest benefit to the dollar bond is that it will signal India’s confidence, former RBI Governor D Subbarao also said in the interview. In the longer term, it will help to bring in more foreign direct investment (FDI), he also said.
Highlighting the negatives connected with the dollar debt, Subbarao said that it may make India hostage to the wild swings of the global sentiment. Since foreign investors are fickle, they may make India vulnerable to exchange rate volatility, he also said, adding Argentina and Turkey are prime examples of dollar bond.
In the budget 2019, Finance Minister Nirmala Sitharaman had budgeted its FY20 gross market borrowing at Rs 7.10 lakh crore. The government is eyeing 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.
Since the proposal was introduced in the budget, several experts including former RBI Governor Raghuram Rajan raised questions on the plan. 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 opposed the government’s idea to sell the bonds in foreign currency.
RBI’s capital reserves
On the issue of central bank’s capital reserves, Subbarao said that it’s wrong to compare RBI’s reserves with other nations and added that any surplus should not go to the government in a single tranche.