Mumbai: India’s plan to issue foreign currency debt has no real benefit and is fraught with risks, according to former Reserve Bank of India governor Raghuram Rajan.
A global bond sale won’t reduce the amount of domestic government bonds the local market has to absorb and the country should worry about short-term “faddish investors buying when India is hot, and dumping us when it is not,” Rajan said in a column in The Times of India on Saturday.
Rajan adds to the growing chorus of opposition to the plan Finance Minister Nirmala Sitharaman announced earlier this month. The plan to sell bonds overseas comes as Prime Minister Narendra Modi faces shrinking options to raise funds as a slowing economy crimps tax revenues. Investors have also been concerned about his plans to borrow a record 7.1 trillion rupees ($103 billion) this fiscal year.
“Could the resulting volatility in India’s debt traded on foreign exchanges then transmit to our domestic G-Sec market? Would the foreign tail wag the domestic dog?” Rajan said. India should instead relax the requirement for foreigners to register as foreign portfolio investors and increase the current ceilings on investment in government rupee bonds, he said.
Three former central bank officials have also opposed the plan, saying the timing isn’t ideal as India runs quite a large budget deficit. India set the budget deficit target for the fiscal year at 3.3% of gross domestic product, lower than the 3.4% estimated in February’s interim plan.
“A small issuance will likely not be problematic,” Rajan, who is also a professor at the University of Chicago, said. “The concern is that once the door is opened, the government will be tempted to issue more, much more, with attendant risks –- after all, all addictions start small.” – Bloomberg
Also read: SEBI, ED and CBDT – the new hurdles in Modi govt’s war on bad loans
When he was in RBI, he allowed his friend Chiddu to loot and never bothered about NPAs. When outside, talk like saint.
stupid people making a stupid comment. This guy is a genius and he was not heard when he was paid to advise because the receiving end was dumb. we will know in five years what a ruinous economy we are. God Bless India.
Dr. Rajan is the biggest example of this Sarkar’s inability, or rather, actual unwillingness and opposition to have competent professionals as part of Indian executive system. There have been many more, in RBI, economic advisors to the PM, our Scientific establishment, premier education institutes etc treated the same way.
And why should that be so? Shouldn’t a genuine leader be expected to aim for a talented team overall, even though it may mean hearing contrarian voices? Wasn’t this capability of Shri Vajpayee hugely appreciated? But then superhero’s (actual or imagined) prefer to work alone, imagining that they should only solve and or get the credit for solving worlds problems.. So anything from a highway, bridge, beating enemy radars using cloud cover, demonitization, all the way to mars probe needs to have the same hand and same stamp.
Actually that’s not correct
This guy is just another sour puss
How is your comment related to the merits and demerits of the issue being discussed/reported? FX sovereign bonds will expose India to FX risk, they are not cheap and induce volatility. He is asking this Govt to deepen domestic bond market and asking to raise the FPI limits to get the needed money and leave the FX risk to the international investors… Hope you stick to the topic and not get into irrelevant and mindless comments…
As of now, the best FM India never had.
Right.