Government advisor rules out foreign bond issue to cut CAD

Raghuram Rajan, chief economic advisor to the finance ministry, said on Sunday that there is no reason for India to consider a sovereign bond issue in global markets to fund India's worryingly high current account deficit (CAD).

"Certainly not foreign exchange denominated bond, but perhaps a rupee bond. Given that our focus is on easing access to Indian sovereign rupee markets and increasing liquidity here and raising depth here, it seems that's the safer way to finance than to go outside and issue a bond," he said speaking at a seminar at the annual meeting of ADB here.

"I am not saying these things will never change ... but at this point, there is no reason to look at it (sovereign bond issue)," Rajan said.

The CAD represents the difference between inflows and outflows of foreign currency. It touched a record high of 6.7 per cent in the December quarter of the last fiscal year. The CAD for the full 2012-13 fiscal year is likely to be around 5 per cent of the GDP.

Some experts have argued that a successful sovereign bond issue, apart from adding to the reserves, would send out a signal that India will be able to easily fund its current account deficit, which touched a record 6.7 per cent.

However, those opposed to the idea of sovereign bonds say it would be counterproductive as markets would see it as a sign of panic in India on the issue of financing the external account.

India has so far managed to finance its current account deficit without depleting its reserves.