In her maiden Budget speech, finance minister Nirmala Sitharaman indicated that the Modi government wanted to borrow more from abroad. Sitharaman said, “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.” During the post-budget media interaction, bureaucrats of the finance ministry hinted that India would soon be launching sovereign bonds without giving further details.
Sitharaman reasoned that India had reasons to borrow more from abroad considering that its sovereign external debt is less than five per cent of its GDP – one of the lowest in the world. India’s sovereign debt is certainly lower than many other nations, and as of March 2019, it stood at $104 billion, which is, in fact, less than four per cent of its GDP. India’s sovereign debt was a fifth of its total external debt. In fact India’s sovereign debt-to-GDP ratio has been declining under the Modi government, indicating that the Indian government wasn’t actively looking for loans abroad.
With India now borrowing through sovereign bonds, this could have a few implications. For one, the India’s loan repayments would be subject to exchange rate fluctuations; depending on which India could have to repay more than it had originally taken the loan. Secondly, overseas borrowing may help the Indian government borrow at a lower costs since interest rates abroad are generally lower than in India. Thirdly, the use of sovereign bonds indicates that the government may be running out sources to borrow from within India.
A recent analysis by Motilal Oswal had found that India had the second worst debt-GDP ratio among emerging markets. India’s debt-GDP ratio stands at 68.4 per cent, next only to Brazil. India’s total debt has risen by almost 50% under the Modi government since 2014.