Mumbai: Montek Singh Ahluwalia, the noted economist who headed the Planning Commission, has advised the Modi regime against its plans to tap the overseas debt market, saying the idea of sellingsovereign bonds was contemplated earlier as well but abandoned as the negatives far outweighed the positives.
The comments from the UPA-era technocrat come amid a proposal from the Narendra Modi government to borrow at least Rs 70,000 crore of its planned market borrowings from a sovereign bonds sale overseas, in a departure from the earlier practice of raising the money domestically alone.
We thought it will do us more damages than gains, Ahluwalia told PTI over the weekend here.
If all you want is to bring in foreign more money, why do you want to borrow in foreign currency? Let them bring in more money and buy the debt over here.
Our capital market will benefit, he explained.
Ahluwalia said by selling public debt to foreign investors only merchant bankers based overseas will benefit through huge commissions for arranging the money.
He, however, said there can be a small limit which the government can set for itself to explore it as an alternative route for funds.
He also questioned what will happen to private sector borrowing in the event of proper limits not being disclosed saying the government has not yet disclosed how much or by when it will tap the overseas debt market.
When asked about the rationale of setting benchmark rates, he expressed doubts if the market will be liquid.
In my view, you should always have government debt which is as far as possible rupee denominated, he said.
However, Ahluwalia supported thegovernment plans to pare its holding instate-run banks below management control levels, saying their 70 percent market share needs to come down.
My own view would be weve 70 per cent of our banking sector in public hands, thats too large. Im not saying we should privatise all of them, though, but limiting their dominance,he said.
He also suggested some of the weaker state-run banks should be recapitalised before initiating a change in the management.
But that is a tough choice which at the moment no political party is willing to buy, he conceded.