Why India's $10 billion foreign bond sale plan may never take off

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India’s foray into international debt markets may consist of little more than sound and fury, as the nation struggles to shed decades of trepidation about borrowing in foreign currencies.
A fanfare announcement in the July budget has been followed by the removal of the official driving the sale, objections from the prime minister’s office, and finally an admission from Finance Minister Nirmala Sitharaman that no work has been done on the mooted $10 billion offering.
India’s first venture into the overseas bond market would shift part of its 7-trillion-rupee ($100 billion) borrowing abroad, and enable it tap a wider pool of funds. But fears that it may increase the nation’s reliance on foreign borrowing has brought together an array of opponents arguing that currency volatility and elevated debt costs would ruin the country.
“India has a historical aversion to issuing in foreign currency, and this has been institutionalized over time,” said Bryan Carter, London-based head of emerging-market debt at BNP Paribas Asset Management. Policymakers “see it as an unnecessary risk to open up to foreign capital flows and subject themselves to the mercy and whims of international investors.”
The fear is that India may tread the well-worn paths of other developing countries such as Argentina and Greece who were saddled with sizable foreign borrowings after they failed to balance their budgets.

“The biggest benefit of the sale is the confidence that it signals to the world at large about India being confident of opening its economy,” said Duvvuri Subbarao, a former governor of the Reserve Bank of India. “But the fear and concern that strike me are that this will become a thin end of the wedge. Once we see that it has become very successful, we might keep on doing it and get into pressure situations needlessly.”...Read More