Wednesday, July 31, 2013

Economy On Ventilator,Now For How Many Days By Sovereign Bond?

Sovereign bond issue will compromise our financial stability, says Subbarao--Business line

The Reserve Bank of India is not much in favour of a sovereign bond issue as it feels that the cost of such an issue will outweigh the benefits.
RBI Governor D. Subbarao said: “We have reservations about the sovereign bond issue… It will compromise our financial stability.”
A sovereign bond is issued by the Government in foreign currency to attract more dollars into the country.
Among other measures, a sovereign bond issue is one of instruments the Government is evaluating to shore up the Indian currency.
The Governor said that it is more prudent if a Government borrows from domestic markets.
“There is a lot of value to be attached to Government’s borrowing in domestic markets. We learnt those lessons during the global financial crisis and we are learning those lessons now,” he said.
He also indicated that the time is not apt for a sovereign bond issue.
“We should be doing a sovereign bond issue, if at all, from a position of strength….when we are much less vulnerable than we are now,” Subbarao said.
The perceived benefits of the sovereign bond issue is that it will add to the foreign exchange reserves, lower the interest rates, establish a benchmark for government borrowing and broaden the investor base.
“Whether we will really get a lower interest rate because of a sovereign bond issue is not clear, if people factor in the exchange rate variations,” he added.
India’s external debt rose by 12.9 per cent to $390 billion in the year ended March 31, 2013.
The debt denominated in US dollars constituted 57.2 per cent of the total debt in the last fiscal.

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