Finance Minister has announced in the Budget that it plans to raise a portion of its gross borrowing from overseas markets using sovereign bonds.
A government bond or sovereign bond is a form of debt that the government undertakes wherein it issues bonds with the promise to pay periodic interest payments and also repay the entire face value of the bond on the maturity date.
The Centre plans to raise around $10 billion from global markets in the second half of FY20.However,when the government raises funds in foreign currency,it has to bear the risk of currency movements.
NITI Aayog Vice chairman has said that the government has taken the decision being cognisant of all the associated risks.He has said that the government will be prudent in raising funds abroad and provision will be made in accounts to account for currency volatility.
Further,he said that there can be major advantages in raising long term funds because many interested players in these will be long term pension funds,retirement funds.So government can launch 20-year papers which will help in private investments.
This proposal along with the government’s asset monetisation plan and the move to give up majority equity shareholding in state-owned companies are aimed at freeing up resources for private investments.