For long, India has depended primarily on domestic debt for its borrowing needs. The low share of external debt might be the reason why India has been protected from uncertainties of global markets. But the approach taken by India is very different to what other emerging nations have done. Like most of those countries, India still does not have an international sovereign bond issuance program.
But foreign investors are looking for high yield debts, in a world that is increasingly becoming a low-rate market. So it might actually be the right time for government to issue offshore sovereign bonds. Low interest rates in international markets indicate that it might be cost effective to borrow from abroad. Another benefit of this will be that it will add to the foreign exchange reserves of the country and more importantly, establish a benchmark for pricing rupee bonds offshore. But experts feel that the decision to launch such bonds cannot be made based solely on the cost-benefit and should also consider the impact on Balance of Payments of the country. The need to access low-cost international markets should be justified in the context of overall savings for the economy.
Apart from that, just going for one-time issuance might not be sufficed. There is a need to put out a regular schedule for such issues as it will create and build up interest among investors and also bring in predictability about the schedule of redemptions in future.
If government is successful in issuing sovereign bonds, it will have a positive spillover effect on the offshore rupee bonds of Indian companies. RBI has allowed firms to sell rupee-denominated bonds overseas to allow them to diversify their funding sources. But these bonds did not receive much investor interest as investors demanded higher coupon rate as a compensation for the higher currency risk. This in turn made the entire idea of borrowing cheaply from aboard redundant.