The overseas sovereign bond plan seems to have been put on the back burner by the finance ministry in the wake of severe opposition by former RBI governors and other economists.

“Following strong criticism, the PMO had called a meeting, which discussed the risk reward relating to overseas sovereign bonds and it was decided to keep it in abeyance for the time being,” a senior finance ministry official said.

When the sovereign bond was announced in the budget, noted economists, including former RBI governors Y.V. Reddy, Raghuram Rajan, C. Rangarajan and PM’s Economic Advisory Council member Rathin Roy, criticised the move.

Even the Sangh parivar organisation, Swadeshi Jagran Manch, termed the move as “anti-patriotic” and a risk for the economy.

The critics argued that borrowing from overseas will not only increase the risk of high inflation and currency volatility but also add to debt costs on dollar bonds when the rupee weakens. They also said that the interest rate of rupee-denominated bonds would be cheaper than dollar bonds once the hedging costs are added to it.

Also, when the markets are in turmoil, the debt issued overseas will be worse hit than onshore bonds as the latter can be repaid by printing more domestic currency.

They all pointed out that the country had not taken such a step even during the 1991 balance of payments crisis.

The move had, however, found support from former RBI governor Bimal Jalan who favoured it in the long term as the economic parameters were good. Chief economic adviser Krishnamurthy Subramanian had listed the benefits of sovereign bond and is seen as the one to come up with the idea.

Subramanian said “the cardinal principle is that well-managed risk is something you have to think carefully when the opportunity presents itself and there is an opportunity now given the benign interest rate environment. We are cognizant of what we need to navigate... we assure the concerned that as someone who thought risk for a living, I understand it well”.

In Union Budget 2019-20, the government said it would raise a part of its gross borrowing requirement from the overseas markets in foreign currencies.

Finance ministry officials had earlier said the government could raise about 10-15 per cent of the proposed Rs 7.1 lakh crore government borrowings this fiscal year through sovereign bonds.