Sale of quasi-sovereign bonds overseas deterred: Lack of domestic avenues cited reason
Government’s high profile plans of raising $ 4 billion through sale of quasi-sovereign bonds overseas have been suspended for the time being, citing the reason over lack of incumbent adequate domestic investment avenues.
Even the fund raising costs are found to be on the higher side at present, which has deterred the plans of three state-run financial institutions (India infrastructure Finance Co. Ltd. (IIFCL), Indian Railway Finance Corporation (IRFCL) and Power Finance Corporation Ltd. (PFC) ) to raise money, which was initially thought by the policy makers to ease the pressure of rising Current Account Deficit (CAD) on the country.
What led government to rethink its plans to raise money through the sale of quasi-sovereign bonds overseas?
- The ballooning CAD has been found easing in the past few months. India will be able to contain its CAD to $50 billion by the time this fiscal year ends on 31 March.
- The partially convertible rupee has gained some satisfactory stability as well.
The plans were originally drafted by the government in the month of August when the country witnessed a draconian fall in the value of rupee, which depreciated to nearly about 69 to a dollar. Even the foreign currency reserves went down considerably and the sale of quasi-sovereign bonds overseas were thought to beef up the depleting foreign reserves.
The three financial firms were asked to issue long-term bonds in order to fund infrastructure projects, which are facing a standstill in absence of adequate investment.
The hedging costs are also on a bit of higher side currently and hence, issuance of bonds wouldn’t be much helpful to prop up our ailing economy.
The latest decision sends a hint that the liquidity position (domestically and globally) is going to perk up in the coming times, especially when the FED is unsure about quantitative tightening and may look to put on hold its decision to reduce printing money by $ 10 billion each month.