Handle with care

Sovereign borrowing in foreign currency has inherent risk

One of the big departures from the past in the first Budget presented by Finance Minister Nirmala Sitharaman last week was the idea to fund the fiscal deficit partially by borrowing from international markets in foreign currency. The basic idea is that by shifting part of its borrowing aboard, the government will reduce the pressure on the domestic market, which will help keep interest rates at lower levels. Public-sector borrowing is putting significant pressure on market rates, along with liquidity in the system, which, among other things, is affecting monetary policy transmission.

As this newspaper argued last week, this is