Why the case for foreign currency sovereign borrowing is not tenable

The Budget proposal will bring little benefit to the country, writes V K Sharma.

According to the current year’s Budget, out of the total proposed borrowings of ₹7 trillion during the current financial year, ₹700 billion may be in foreign currency. To put the proposal in perspective, in what follows, the cost ( risk of loss due to rupee’s unexpected depreciation) benefit ( interest savings due to lower nominal borrowing cost in foreign currency) analysis has been done given the reality of the exchange rate risk being by far the most serious financial risk!

Let us assume that the currency of sovereign borrowing is the US dollar and about $10 billion (assuming exchange rate