Sovereign bonds issue remains a non-starter after 7 months

February 24,2020

Seven months after the announcement, the sovereign bonds issue announced by Finance Minister Nirmala Sitharaman remain a non-starter.

Seven months after the announcement, the sovereign bonds issue announced by Finance Minister Nirmala Sitharaman remain a non-starter.

To date, the Finance Ministry has not fixed any target amount to be raised through sovereign borrowings in external currencies. The scheme was announced on July 5 last year but so far, no amount has been raised through this.

In a reply dated February 10 to a Right to Information (RTI) query, the Finance Ministry said that no target has been fixed under this scheme.

Replying to a query on the sovereign bonds to be issued in global markets, the Ministry said that Finance Minister Nirmala Sitharaman, in her 2019-2020 Budget speech dated on July 5, 2019 announced that: "The government will start raising a part of its gross borrowing programme in external markets in external currencies."

Replying to a query on the inflow, the Finance Ministry said that no amount has been raised through issue of sovereign bonds in the global bonds in external currencies so far.

Sitharaman had said in the 2019-2020 Budget speech that the borrowing in external markets in external currencies "will also have beneficial impact on demand situation for the government securities in domestic market".

Following the announcement of sovereign bonds, there had been reports of a rethink as the RSS and the Swadeshi Jagran Manch (SJM) were opposed to the idea. Some economists and former RBI Governors like Raguram Rajan had expressed unease with the idea.

In her first Budget in 2019, Sitharaman had announced proposal to issue Sovereign Bonds in the global markets. It was one of the most debated topics of that Budget.

The rationale for the decision presented in the budget speech was India's lowest sovereign external debt-to-GDP ratio. The idea of borrowing though this method was criticised by experts. It was said that India never resorted to such a move despite staring at a slowdown in the economy during 1990-91, 2007-08 and 2013. From Raghuram Rajan to the Swadeshi Jagran Manch, the economic arm of the Rashtriya Swayamsevak Sangh, there was concern over the move.

There were also reports that Prime Minister's Office (PMO) wanted the finance ministry to reassess the idea. Despite facing criticism, Sitharaman has ruled out reconsidering this plan.

Contrary to the response of Government in the RTI query, there were reports quoting top official of Finance Ministry that India plans to raise as much as $10 billion from its first overseas sovereign bond. Talking about it, then Economic Affairs Secretary Subhash Garg had said that it would be a cautious beginning. He indicated that in terms of risk management it would not exceed 10-15 per cent of the total borrowing, which makes it roughly about $10 billion.