Abstract
Presenting India’s 2019 budget on July 5, Finance Minister Nirmala Sitharaman sketched out the Modi government’s vision of becoming a $5 trillion economy by 2024, almost doubling the country’s current gross domestic product (GDP) of $2.73 trillion. To achieve this ambitious goal, India plans to liberalize foreign direct investment (FDI) rules and tap international bond markets to fund its budget deficit. The latter is a risky enterprise and ensures exchange rate policy becomes a future battleground. However, India’s economic growth has been slowing over the past two quarters, and the government has limited options to raise funds domestically, forcing it to look at external foreign currency borrowing. The government is betting that external borrowing combined with FDI inflows will lead to greater domestic investment and thus higher growth.
