Mumbai: Even as some economists are sceptical about the government's proposal to raise money from the overseas market through a sovereign bond, a report by the State Bank of India says, India is best placed to tap the sovereign bond market now.
The Union budget has proposed that government would tap the external markets to raising a part of its gross borrowing programme. Market estimates are that it could raise about $ 10 billion, around Rs 70,000 crore or 10% of gross market borrowings worth of sovereign bonds initially.
This amount is merely 2.3% of total Indias current forex reserves and 29% of net FDI flows in FY19. This amount is also a third of the minimum amount of sovereign debt issued in international markets, the report by the State Bank of Indias research team said.
“Going by the international evidence, India is best placed to tap the sovereign bond market now” said SS K Ghosh, group chief advisor at State Bank of India.” Comparison with Latin American and Asian economies is imprudent and naïve”
Economists have expressed their concern over past experience of some Latin American economies like Argentina and some South Asian economies , which had high overseas borrowings and were in trouble when their currencies depreciated steeply, impacting other local macro variables including inflation.
The report justifies its stand pointing that average debt denominated in foreign currencies as per cent of the countries economic output or gross domestic product- GDP was 51 per cent. The debt to GDP ratio was 124%, current account deficit to GDP at 6 per cent, investment inflows at 9% of GDP and GDP growth growth itself at 5% just before the crisis. In contrast, Indias external debt/GDP is at 19.7%, sovereign foreign currency debt Read More – Source