Foreign sovereign debt concerns stem from fear of the unknown: Garg

Subhash Chandra Garg
A day after the Union Budget 2019-20, Finance Secretary Subhash Chandra Garg said India’s experience with overseas sovereign bonds will not be like that of Latin American countries as they managed their economy badly. Speaking toIndivjal Dhasmana, Garg also said the Rs 90,000 crore dividend expected from the Reserve Bank of India (RBI) is completely unrelated to what the Jalan panel may recommend. Edited excerpts:

You have projected the nominal gross domestic product (GDP) for 2019-20 to grow 12 per cent year-on-year compared to 11.5 per cent in the interim Budget. At a time when there is a definite slowdown, isn’t that a little optimistic?

I think there is some clarification needed. We have used the advance GDP data of 2018-19 in the revised estimates, which was Rs 188 trillion. Thereafter, the provisional estimates came for 2018-19, which is around Rs 190 trillion. If you work on that for 2019-20, the nominal growth assumed of Rs 211 trillion is 11 per cent, a more realistic number. We have used revised estimates and not provisional numbers because it is not the practice and creates comparison problems.

You have increased your dividend expectations for this year from the RBI to Rs 90,000 crore from Rs 69,000 crore in the interim Budget. Isn’t that premature if the Jalan panel recommendations have not come in?

This is nothing to do with the Jalan committee recommendations, which is about the stock, surpluses and buffers which the RBI is holding. This is for the current year which ended on June 30, based on the profits that the RBI is expected to show. One of the biggest announcements in the Budget was of raising sovereign debt overseas. Countries which have tried that, including some Latin American nations, have not had a good experience. Sovereign bonds are issued by practically all the sovereigns. There are sovereigns which have done very well, built up a very good benchmark around them, and there are some that have not. But those who have not done well, it is not because of the sovereign bond issues. It was because of their bad economic management. For example, Argentina. The biggest reason for its economic situation earlier was that the country had pegged its currency with the dollar on a 1:1 basis. That was completely unsustainable. So, whether you issue sovereign debt or not, if your economic management is bad, you will suffer. We are already exposed to foreign currency. Today, 6 per cent of government’s securities can be subscribed by foreign institutional investors or FIIs, that invest by bringing in foreign currency. They invest in rupee-denominated securities. But they have the full freedom to take the dollar back if they want. For them, it is as good as a dollar investment in a rupee security. We always have had a fear of the unknown. When we opened up foreign direct investment or FDI, there were a lot of apprehensions. We had not opened up investments in a long time and were protectionist. When we opened up the markets, a lot of people opposed those as well.

When will you decide on the tenure and the quantum of such issuances?

All these things we will work out. Now, we will take into account the practices and sovereign issues, what tenure to decide on, whether 5 years or 10 years. A limit of Rs 70,000 crore, or around 10 per cent of total gross borrowing, looks like a good prudential limit. We should not exceed this.

Is the move a harbinger of full capital account convertibility of the rupee?

No, this does not mean so. The policy is that there is full convertibility in areas where you have allowed foreign participation. If foreigners invest in the rupee-denominated sovereign securities, the capital convertibility for that is fully available. They can sell out and take the money. So, capital account, which is allowed in some areas, and which is not allowed in others, is not permitted. The Budget proposal of sovereign bonds does not require any money to be taken out. So, your question is not relevant from that point of view.

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