The Prime Minister’s Office(PMO) has asked the finance ministry to reconsider the idea of issuing foreign currency overseas sovereign bonds.
Finance Minister in her budget speech had said that India would look to issue overseas foreign currency sovereign bonds.
However,the idea has been criticised by economists as they argued that it could create long-term economic risks by exposing the government’s liabilities to currency fluctuations.
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.
However,overseas sovereign bonds will be denominated in foreign currencies.In other words,both the initial loan amount and the final payment will be in either US dollars or some other comparable currency.
Further,experts have said that overseas borrowings would lead to a quicker increase in India’s foreign exchange reserves which would lead to a stronger rupee.A stronger rupee would encourage imports at a time when the government is trying to curb them.