Objection : Volatile dollar/rupee rates will create “unquantifiable” costs in the long term

Counter : Wrong. By paying a premium of 5-odd percent to hedge against future dollar rates, our costs will forever be controlled and quantifiable. While the hedged interest rate would be a few basis points higher than what the government could borrow at, in local markets, these shall get compensated by the several positives that accrue on venturing overseas, including the fact that private borrowers get more cash in domestic bond markets

Objection : Why go overseas when you can ask FPIs (foreign portfolio investors) to lend more in the domestic market, ie, sell them more rupee bonds

Counter : This one is specious. Because when you float a sovereign bond overseas, you access an entirely new category of lenders, over and above FPIs that are authorised to invest in India

Objection : Foreign investors could indiscriminately dump our bonds, creating a run on the rupee and “importing” contagion

Counter : False. Since the bonds will be denominated in dollars and traded on overseas exchanges, any “dumping” would not directly impact the rupee or domestic markets. In fact, the alternative being advocated above, of increased FPI exposure to rupee bonds, creates exactly the “dumping risk” that is being wrongly attributed to dollar bonds

Objection : India could stare at an international default in frightful, flight-ful times

Counter : This fear is not even worth a soiled one-dollar bill. India gets an annuity of nearly $70 billion from its hard-working sons and daughters living overseas, who willingly repatriate to their loved ones left behind. NRIs have also kept an unflinching $100 billion in term deposits in their motherland. Finally, India’s forex reserves are nearly 18 times $30 billion (and growing). If we can’t have the stomach for this much risk, let’s just quit (or take voluntary retirement).

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GST Council – Take a Dollar ‘Risk’, Save India’s Federal Democracy

“The clock is ticking ominously, and India’s federalism is hinged on a ventilator,” writes Raghav Bahl.

Raghav Bahl

Updated: 09 Oct 2020, 9:01 PM IST

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The federal structure of India’s democracy is threatened with violence and obliteration!

No, this is not the usual hyperbole peddled under our now-obliterated news ethics. It’s the scary truth, unless the Modi government and Opposition-ruled states can strike an equitable compromise on Monday, 12 October 2020. With less than 72 hours to go, the clock is ticking ominously, and India’s federalism is hinged on a ventilator.

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Topics: Raghav Bahl GST Council Meet Raghav's Take

Published: 09 Oct 2020, 8:54 PM IST