oppn parties Overseas Bonds: Are They As Bad As Made Out To Be?

News Snippets

  • Supreme Court sentences Congress leader Navjot Singh Sidhu to one year rigorous imprisonment in the 1988 road rage case
  • Home Minister Amit Shah says rights should not be demanded before fulfilling responsibilities and that universities are no place to wage ideological battles
  • NIA court convicts JKLF chief Yasin Malik in terror funding case after he pleads guilty of all charges
  • A study backed by PM-EAC has recommended universal basic income and urban job guarantee and greater spend on social sector schemes
  • Supreme Court rules that the decisions of the GST Council are not binding on the Centre and the states, leaving the door open for states to levy further taxes
  • After sustained campaign by BJP MP Arjun Singh, the Centre today withdrew the jute price cap order, industry welcomes move
  • Akasa Air might postpone its July launch due to late arrival of aircrafts
  • Metro Cash & Carry decides to sell Indian operations. All major players, including Reliance retail and Amazon, are likely to bid
  • Local and global cues spook the markets on Friday - Sensex crashes 1416 points to 52792 and Nifty by 430 points to 15809
  • IPL: RCB crushes GT by 8 wickets as Virat Kohli returns to form with a well-made half century
  • Nikhat Zareen is world champion in flyweight category. Wins gold at Women's World Championships at Instanbul
  • Supreme Court uses its special powers under Article 124 to release A G Perarivalan, a Rajiv Gandhi assassination convict
  • Indrani Mukherjea, prime accused in the Sheena Bora murder case, gets bail from Supreme Court after 6.5 years in jail
  • Hardik Patel quits Congress, says top leaders distracted by mobile phones and state leadership busy arranging 'chicken sandwiches' for them
  • Anil Baijal resigns as Lieutenant Governor of Delhi citing "personal reasons"
Nikhat Zareen is crowned world champion in the flyweight (52Kg) category at the Women's World Championships in Istanbul /////// Supreme Court sentences Navjot Singh Sidhu to rigorous imprisonment of one year in the road rage case /////// Sunil Jakhar, who quit the Congress a few days ago, joins the BJP
oppn parties
Overseas Bonds: Are They As Bad As Made Out To Be?

By A Special Correspondent

Prime Minister Modi's remarks about the huge liquidity in global financial markets and the reduced cost of borrowings if funds are accessed from such markets signals a growing realization in the higher echelons of government that the liquidity crisis being faced by the government can be overcome by borrowing at low cost in the global markets. In fact, finance minister Nirmala Sitharaman had announced plans for issuing sovereign overseas bonds to part-finance the ambitious investments in the infrastructure sector. But the idea got embroiled in controversy after a lot of experts (and some non-experts too), including two former RBI governors, pointed out the pitfalls and Subhash Chandra Garg, the former finance secretary who first mooted the idea was shunted out. For all practical purposes, the bonds were put on the backburner. But Modi's recent remarks signal that the government might yet adopt this route.

So are sovereign overseas bonds as bad as they are made out to be? Yes and no. Yes, if the government indulges in excess and tries to borrow a major part of its requirement through these bonds. No, if it keeps it within 20% of its total borrowings. People who show the example of Latin American countries that went bust after issuing overseas bonds often show one side of the picture. They suffered because they got greedy and started borrowing more than 60% through this route, exposing them to speculators once the liquidity of the bonds diminished as their economies were not robust enough. If India borrows up to just 20% through this route, one feels that given its strong macro-economic fundamentals, it will be a very cost-effective route for it. The only area of concern if the large fiscal deficit but perhaps issuing overseas bonds will instill a measure of fiscal discipline in handling government finances.

Along with this, the government must also look into the suggestion of Raghuram Rajan, the former RBI governor, who feels that the investment cap for foreign investors on G-Secs, or government securities, should be raised to get more, and similarly low cost, funds in foreign currency. One feels that both these routes can be adopted simultaneously to get better results. The only problem would be if overseas investors are not interested. There are already reports that institutional investors in Japan (India is planning to issue bonds for the yen and euro markets) might not be fully interested in such a big-ticket bonds issue at this juncture. Hence, the government must study the market conditions in detail before rushing-in with the issue.