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Last Updated : Jul 06, 2019 09:16 PM IST | Source: Moneycontrol.com

Budget 2019: Centre might be looking at second half of borrowing calendar to raise money overseas, says Finance secy Garg

The announcement, which was made in the Budget speech, gave rise to concerns from the financial sector analysts and market participants that it might open India up to the risks of getting affected by the volatility of global financial markets.

Kamalika Ghosh @GhoshKamalika

The Indian government's maiden plan to issue sovereign bonds to the world to raise funds for a part of its debt overseas, could be initiated in the second half of the borrowing calendar, Finance Secretary Subhash Chandra Garg told Moneycontrol.

"The first round of borrowings always take time to figure out the modalities, understanding processes, create enabling arrangements for payments of interest, tax deductions etc. My best call is by the time we do the second half of the borrowing calendar, we'll be able to figure it out," Garg said.

In her maiden budget, Finance Minister Nirmala Sitharaman announced the government's plan to raise part of its gross borrowing requirements via foreign currency borrowings.

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The announcement gave rise to concerns from the financial sector analysts and market participants that it might open India up to the risks of getting affected by the volatility of global financial markets.

Calling such fears as being off the mark, Garg says that the Indian government's exposure to foreign currency is less than 5 percent of the GDP, which keeps it well insulated from pressures of external volatility.

"It has been very carefully announced that only a part of government's borrowing programme will be raised overseas so it's not any additional debt. So long as the overall borrowing remains within established limits, it's not a cause of concern. Our foreign currency exposure is less than 5 percent of GDP. Government's exposure is very small. The private sector's is much bigger with the ECBs and others," Garg said.

The budget also projects that the government would earn Rs 106,041.56 crore as dividends from RBI and banks in 2019-20, up 43 percent from Rs 74,140.37 crore in the previous year. The assumption behind such a robust collection was the likely profits of RBI for 2018-19.

"RBI's asset size has gone up, profitability has gone up and our estimate of the dividend is based on that," Garg said.

Th interchangeability of the PAN and Aadhar announced in the budget has also given rise to concerns that the government might want to phase out PAN.

"I don't think that's the intention at all. We need to wait for more detailed instructions. In the interest of ease of doing business, tax department is enabling the use of Aadhaar. Don't think there is any move to do away with PAN, it serves for a different kind of use," Garg said.

The budget also announced that the government would encourage public sector banks to buy high-rated pooled assets of up to Rs 1 trillion of financially sound NBFCs, for which the government will provide a one-time six-month partial credit guarantee for the first loss of up to 10 percent.

The banks can buy assets of NBFCs up to Rs 1 trillion during FY20. Following this, Reserve Bank of India (RBI) issued a notification saying that it has opened an indirect liquidity window for the sector to aid banks to give funds to the sector.

Calling the announcements huge confidence building exercises, the finance secretary said that if the announcements is able to meet the desired result, the normalcy will be restored in the NBFC sector.

"NBFCs and HFCs are not a monolithic construct. Some NBFCs and HFCs even today are able to raise funding for their lending programme, some may not be able to raise the whole amount but are raising a substantial part of it. Finally there are some that are facing real constraints. But it has also happened together that a general atmosphere of risk aversion has build up. Banks, MFs (mutual funds) are holding themselves back. This announcement is to tackle this risk aversion. If you think there is risk in their papers which you can lend against, then we are prepared to bear first loss. That will build confidence. It's a massive large confidence building exercise and if it manages to do that, normalcy will be restored," Garg said.
First Published on Jul 6, 2019 09:16 pm
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