Sovereign external borrowing: A tightrope walk for government

New Delhi: The government's plan to mobilise funds through overseas sovereign bonds has triggered a debate on its efficacy.

The decision to take up this route for raising capital was announced in the Budget 2019-20 and the proposal has received both bouquets and brickbats.

It is also considered as one of the reasons for shifting finance secretary Subhash Chandra Garg to Ministry of Power.

Although, the exact reason for the high-profile transfer is unknown, officials in hushed voice say the government developed cold feet after criticism over the plan of borrowing from overseas market.

Finance Minister Nirmala Sitharaman in Budget 2019-20 announced that the government would start raising a part of its gross borrowing programme from external markets in foreign currencies.

She added that India's sovereign external debt-to-GDP level is among the lowest globally at less than 5 per cent. People in favour of issuance of overseas sovereign bonds termed it the boldest move of the Budget 2019-20.

The programme is aimed at diversifying the government's borrowing programme. So far, the government has been borrowing from the domestic market in the local currency -- Rupee.

Issuance of government bonds overseas in foreign currency would significantly reduce dependence on the domestic market leaving room for private sector to raise capital for investment as crowding out will be checked to some extent.

The government intends to borrow Rs 7.1 lakh crore from the market to meet its fiscal deficit, the shortfall between revenue and expenditure.

If 10 per cent of the borrowing is done from overseas market, it will leave about Rs 70,000 crore for the private sector.

This will increase supply of money in the domestic market and give more investible resources in the hands of the private sector which has not been making investment in the economy for the last few years due to various reasons.