Budget 2019: India plans to raise $10 bn from first overseas sovereign bond

India plans to raise as much as $10 billion from its first overseas sovereign bond because there’s huge appetite for its debt in the foreign market, according to a top finance ministry official.

"It’s a cautious beginning, which we need to make," Economic Affairs Secretary Subhash Garg said in an interview on Saturday. "In terms of risk management I don’t see it exceeding 10-15% of the total borrowing, which makes it roughly about $10 billion."

Sovereign bonds in India rallied on Friday after Finance Minister Nirmala Sitharaman said during her budget speech that the government would borrow in foreign currency to finance the budget deficit, a move that will ease pressure on local markets.

"We should be in a position to design the bond issuance program in the next couple of weeks," Garg said in his office in New Delhi, adding the government will release more details in September when it announces borrowing plans for the second half of the year.

Currency Risks
 

Prime Minister Narendra Modi faces shrinking options to raise funds as a slowing economy crimps tax revenue. Investors have been concerned about his plans to borrow a record 7.1 trillion rupees ($104 billion) this fiscal year, a target Sitharaman left unchanged.

Indian officials, who saw the country’s $2.6 trillion economy fall behind China after the slowest expansion in five years in the latest quarter, see an opportunity to reduce interest costs by borrowing abroad at lower rates.

The idea of a sovereign bond has been discussed by Indian governments in the past, but was never pursued. Some former central bankers have opposed the plan, as it faces risks from currency fluctuations. Former Reserve Bank of India Deputy Governor Rakesh Mohan told CNBC-TV18 on Friday that it was a "dangerous move."

"It may make a positive difference to the current account due to the inflow of foreign currency," Garg said. "I don’t see anybody arguing rationally about its adverse impact."