interest rates

Finance secretary Subhash Chandra Garg. (IANS file photo)

NEW DELHI (IANS) — In a bid to lower domestic interest rates, Finance Minister Nirmala Sitharaman has proposed raising a part of the government's gross borrowings from abroad.

Traditionally, government raises cheaper funds from international markets by offloading sovereign bonds.

The move will free up additional liquidity in the domestic market. However, it is expected to impact the Indian rupee and G-sec Bond yields.

"India's sovereign external debt to GDP is among the lowest globally at less than five percent," Sitharaman said in her maiden Budget speech in Parliament July 5.

"The government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market."

Finance Secretary Subhash Chandra Garg at the post-Budget media conference said: "We will be starting the sovereign bond preparations soon. We have not decided the exact amount, but we will be starting the process soon, certainly in this financial year."

A sovereign bond is a debt security issued by a national government. Sovereign bonds can be denominated in a foreign currency or the government's domestic currency.

It will be a maiden such bond issuance. In 2013, the government had considered the idea, but never implemented it. The country that time faced wide fiscal and current account deficits.

Instead, the Reserve Bank of India announced a scheme to incentivize foreign currency non-resident deposits, which brought in nearly $34 billion.

Consequently, most of India's debt is rupee-denominated.

The share of government debt in total external debt is minuscule. India's sovereign external debt stood at $103.8 billion at end-March 2019, showed the latest data released by the Reserve Bank of India in June.

The share of government debt in total external debt stood at 19 percent at end-March 2019 from global financial agencies, the data showed.

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