The finance ministry has now mooted the idea of allowing foreign investors to buy India's sovereign bonds to jump start the country's foreign reserves as well as bridge the current account deficit (CAD), but the central bank is said to have expressed uneasiness over the plan which may put Indian financial system at risk to global forces in long-term.
Those who are against the FinMin's idea have argued that yields of such bonds become very volatile and this could affect the yields of the 10-year benchmark government bond in India.
A senior foreign bank official was quoted by the report as saying "In a recent interaction, the central bank had communicated its discomfort in issuing sovereign bonds. It has been observed in the past that small trigger can create volatility in the bond market."
Analysts also said that India currently holds its debt internally which is advantage for the country as compared to Europe where this debt is held by foreign investors and is creating a lot of stress in the system currently.
Economists also said that boosting forex reserves through issue of sovereign debt to overseas investors would impact the country's external debt positions.