New Delhi: India’s central bank plans to discuss next month the government’s proposal to raise foreign currency debt, people familiar with the matter said, amid risks flagged by economists about the plan.
The Reserve Bank of India’s board will meet on Aug. 16 to discuss, among others, the nation’s proposed maiden offshore bond sale plan, the people said, asking not to be identified as they are not authorized to speak on the subject.
The offering is mired in confusion after an official overseeing the plan was abruptly transferred out of the Finance Ministry last week, amid reports that the Prime Minister’s office had asked for a review. Finance Minister Nirmala Sitharaman said in an interview to the Economic Times newspaper that there’s no rethink and the plan is on course.
The sovereign bond plan was criticized by former RBI Governor Raghuram Rajan as one that has no real benefits and exposes the country to “faddish investors buying when India is hot, and dumping us when it is not.” A key nationalist ally of Modi’s ruling Bharatiya Janata Party has called the proposal a “dangerous idea” that could lead India into a debt trap.
Concerns raised by prominent economists will be discussed by the RBI board, one of the people said.
The 17-member RBI board has representation from two bureaucrats as well as a member of the Swadeshi Jagran Manch, a group affiliated to the ruling party’s ideological parent, the Rashtriya Swayamsevak Sangh.
A spokesman for the central bank declined to comment. The RBI is the debt manager to the government and there is a process of consultation between the central bank and the government, Governor Shaktikanta Das said in an interview last week. – Bloomberg
Also read: India’s maiden $10 billion foreign bond debt sale deal is fraught with confusion
Obviously RBI will not see any risks in borrowing through bonds.
On an issue such as this, the entire RBI Board need not be troubled. The Governor and his four deputies could form the brains trust of the central bank in rendering advice to the government.