“India’s sovereign external debt to gross domestic product (GDP) is among the lowest globally at less than 5 per cent. The government will start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on the demand situation for the government securities in a domestic market,” she had said.
“The aim is to create a benchmark and build a stable market for our external bonds. For that, the first tranche will have to be a big one, and the tenure will have to be longer than the benchmark 10-year bond at home,” said an official.
“The finance ministry has an idea about what shape the sovereign bonds will take. That idea will be refined further when we start meeting investment banks from August onwards to get a better understanding of the global bond markets, and where all we can target the excess liquidity,” the official quoted above said.
“Discussions will also be on which currency do we peg these bonds to, whether dollar, euro, yuan or others. The contours of the instrument will be finalised by October, after which the roadshows will commence to attract big institutional investors who will be the market makers,” a second official said.
The plan, so far is to launch the bonds in multiple financial centres to take advantage of the excess liquidity in the global capital markets. The ‘big guns’ among Indian policymakers, so to speak, will be embarking on the roadshows, the details of which are still being worked out.
Over the last few weeks, Finance Ministry officials have been defending the criticism from various quarters regarding the announcement to issue sovereign bonds overseas. The biggest criticism came from former RBI governor Raghuram Rajan, who had said in a column in the Times of India that the decision to issue foreign currency debt comes with enormous risks but no real benefit.
Officials have said that not only the decision to raise debt overseas will reduce the cost of borrowing and take advantage of excess liquidity in global markets, but will also create additional space for corporate bonds in the Indian markets.