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Raghuram Rajan not in favour of sovereign bond to finance CAD

06 May 2013 Evaluate

Opposing the government’s decision for a sovereign bond issue in the international market to fund a widening current account deficit (CAD), the Chief Economic Advisor Raghuram Rajan said that there is no reason to consider issuing a sovereign bond in global markets to fund India's bulging CAD. Given that our focus is on easing access to Indian sovereign rupee markets and increasing liquidity and raising depth, domestic bond markets is the safer way to finance than to go outside and issue a bond.

However, as per Rajan, over the long term, these dynamics could change. Earlier, according to some finance ministry officials, sovereign bonds could address the financing problems of CAD and the infrastructure sector. CAD for the October-December 2012 period, swelled to 6.7% of gross domestic product. However, it is expected to be lower in the January-March quarter, aided by a surge in exports.

Meanwhile, the government had first issued quasi-sovereign debt bonds through State Bank of India in 1991, when the country was facing a balance of payments crisis. Further, bonds were again issued in 1998, when the country faced sanctions from the US and in 2000, to support the foreign exchange reserves.

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