Government of India
have decided to prepay certain foreign currency loans from the
Asian Development Bank (ADB) amounting to US $ 1.30 billion
(approx.) and from the World Bank amounting to US$ 1.67 billion
(approx.) taking into account the strong foreign exchange position
and low interest rates in the domestic market. The Government
will purchase the foreign currency required for the repayment
directly from the Reserve Bank of India at prevailing exchange
rates. The Government will substitute this foreign debt with
domestic debt amounting to Rs.13,000 crore issued on private
placement basis to the reserve Bank of India on February 24,
2003. The new debt issue will comprise two new securities viz.,
6.72 percent Government Stock 2014 for an aggregate amo! unt
of Rs.5,500 crore and 6.57 per cent Government Stocl 2001 for
an aggregate amount of Rs.7,500 crore. Any residual requirement
of rupees will be met out of Government’s cash holding. The
date of repayment of the external loans will be February 24,
2003 and February 27, 2003, respectively.
Since the fresh
rupee borrowings by the government (through private placement
with the Reserve Bank of India) will be used exclusively to
retire an equivalent amount of debt in foreign currency, with
equivalent residual maturity, the transactions will not have
any fiscal implications. The monetary impact of the additional
borrowing, through private placement, will be neutralized by
equivalent rupee payments by Government of India to Reserve
Bank of India towards the purchase of foreign exchange. The
reduction in the Reserve Bank’s foreign exchange assets will
be matched by a corresponding increase in the domestic assets
in the form of Government securities acquired by way of private
placements.
