New Delhi: Stunned by an abrupt hike in crude oil prices that has the potential to worsen the fiscal deficit, the government is believed to be veering towards the idea of issuing international sovereign bonds of up to $4 billion during the current fiscal. The borrowing, however, would remain under the limit of the budgeted plan of Rs 6.06 lakh crore for the current fiscal.
The buzz in the finance ministry is that some preliminary discussions have already been held on the maiden overseas sovereign bond issue. Sources said the idea of issuing bonds overseas cannot be completely ruled out.
When contacted, finance ministry official spokesperson DS Malik said: “There is no such plan immediately.” A couple of senior officials also said it is not an immediate plan.
The ministry would have to discuss the idea with the Reserve Bank of India (RBI) threadbare over the necessity and urgency for raising the offshore dollar bonds. It is a well-known fact that the RBI does not favour overseas debt. The regulator abhors the idea of dollar bonds after the bad experience of the early 90s when the nation was heavily indebted to the IMF. The finance ministry had also stopped looking at offshore bonds as a borrowing source.
An economist, who requested anonymity said, the government should go for it as there a huge demand for Indian government debt papers. An analyst said it may be a good idea per se but BJP being a nationalist party with huge Make-in-India attitude, looking at foreign debt would be reversal of core policies. Being indebted to foreign fund houses would be seen as compromise on sovereign issues, the Latin American countries which had borrowed from overseas and failed to repay is a case in point.
Sources said whether the government goes for it, the situation for overseas bonds today is ideal as India’s foreign exchange reserves are at a record high of more than $420 billion. The yield on benchmark 10-year bond has dropped to as low as 7.34 per cent from a high of 7.49 per cent.
Moody’s Investors Service last year upgraded the sovereign to Baa2 from Baa3, the first increase since 2004. Fitch Ratings and S&P Global Ratings rate India at the lowest investment grade.
Global oil prices hitting a four-year high of $75 a barrel due to the volatile situation in Syria. China last October announced plans to issue $2 billion of dollar-denominated sovereign bonds in Hong Kong, the first such issuance in 13 years.
