No proposal to issue foreign currency govt bonds, says finance secretary

The Budget for 2019-20 contained a proposal to issue foreign currency-denominated bonds to raise funds from abroad.

The government does not plan to raise money from overseas through foreign currency bonds, finance secretary TV Somanathan said on February 16.

"...are we proposing to issue foreign currency denominated sovereign government securities? The answer is no," Somanathan said in response to a question at a post-budget interaction in Hyderabad.

While such bonds did have some benefits, there were risks too, Somanathan said.

"The negative effects are in the region of atmanirbharta, sovereignty, exposure to risks which are non-Indian and there is a lot of worldwide experience on this," the finance ministry official said.

"And in this very volatile world where we have seen that even central bank money can be stopped by a foreign country for political reasons. So, this is not a simple question of yields alone."

A proposal to issue foreign currency-denominated government bonds was made in the Budget for 2019-20 to raise some of the Centre's market borrowing from abroad. The then economic affairs secretary Subhash Chandra Garg said 10 percent of that year's gross borrowing programme could be financed by these bonds.

The controversial proposal died a quick death, with economists, including former Reserve Bank of India governor Raghuram Rajan, criticising the proposal.

Garg, who was thought to be the chief architect of the proposal, was transferred from the finance ministry to the power ministry a day after the 2019-20 Budget was passed by Parliament. Garg sought voluntary retirement and exited in late 2019.

In a blog post in November 2019 following his retirement, Garg wrote that "a confidant India needs to raise Sovereign Bonds in Foreign Currency".

"Advanced economies are awash with savings, whereas developing countries like India are still hugely short of savings to fund investment… Raising sovereign debt in foreign currency is the real opportunity to raise resources at cheaper cost to meet the investment gap," Garg wrote.

India was already open to foreign portfolio investment in rupee-denominated securities, Somanathan said .

"It's not as if the crowding out will happen because foreign money doesn't come in. Foreign money is coming in the rupee-denominated securities market," he said.