External and Internal Debt Management.
External Debt Management: The Indian government adopts a prudent approach to external debt management, which includes:
- Monitoring long and short-term debt.
- Raising sovereign loans on concessional terms with longer maturities from multilateral bodies.
- Regulating external commercial borrowings through end-use controls.
- Encouraging rupee-denominated Masala bonds.
- Rationalizing interest rates on Non-Resident Indian (NRI) deposits.
NRI Bonds as a Strategy: To address challenges related to foreign exchange reserves and the exchange rate of the rupee, the Government of India has floated NRI (Non-Resident Indian) bonds. Key instances include:
- Resurgent India Bond (RIB) - 1998:
- Issued worth $5 billion to withstand sanctions on India following nuclear tests. Raised $4.8 billion.
- India Millennium Deposit (IMD) - 2000:
- A $5 billion bond with a five-year tenure, attracting NRIs with higher returns.
- FCNR-B Special Deposit - 2013:
- A $34 billion deposit with a three-year maturity, raising $30 billion to bolster foreign exchange reserves.
Conclusion: SDC underscores the importance of careful external debt management, prudent borrowing practices, and the need to ensure a sustainable balance between foreign currency inflows and internal financial obligations. NRI bonds serve as one of the strategies to address specific challenges related to foreign exchange and to attract investments from the Indian diaspora.
Internal Debt: Understanding the Components and Significance
Components of Internal Debt: Internal debt encompasses various forms of borrowing within a country. Key components include:
- Loans in the Open Market:
- Government borrows through the sale of treasury bills and bonds in the open market, facilitated by the Reserve Bank of India (RBI).
- Special Securities Issued to the RBI:
- The government issues special securities to the RBI as part of internal debt management.
- Other Liabilities:
- Includes funds collected through small-savings schemes, provident funds, and other similar avenues.
- RBI's Printing of Currency:
- The RBI engages in currency printing, contributing to internal debt. For in-depth details, specific chapters on Monetary Policy and Money and Capital Market provide further insights.
