Independent India’s first fulltime woman finance minister Nirmala Sitharaman unobtrusively announced New Delhi’s policy-making adulthood on budget day. A red-and-gold file, with the national crest underscoring the country’s traditional mercantile heritage, marked the end of sticky colonial influence — the Westminster-styled brown briefcase.The file’s contents were even more emphatic in highlighting the bold voyage into unchartered waters of a nation that seeks to expand into a $5-trillion economy in five years. She ended the diffidence in North Block. The nation would now raise loans in London, New York or Tokyo, junking seven decades of dogmatic abstinence induced by conservative and Left-leaning economic thought, which viewed global money hubs of Wall Street, Canary Wharf or Marunouchi as incarnations of the East India Company.Her decision has polarised a nation where opinions abound. Optimists see this bold move from a conservative technocrat-turned politician as an announcement of intent and conviction by a nation hitherto shackled by socialistic beliefs. Critics view the decision as a dangerous journey that may end in tears if future governments fail to play by the ever-changing rules of a complex global game.“I don’t see a very large programme and it’s not advisable — it will be a small programme,’’ says SC Garg, finance secretary, indicating that the sale size could be about $10 billion.So, although details of the borrowing plans are sketchy, the initial sales target would seek to minimise the risk exposure.“This is meant to tap a large alternative pool of global capital,’’ says Saugata Bhattacharya, economist at Axis Bank . “The budget’s fiscal prudence has an element of confidence building. It demonstrates a culture of macro discipline, which is very important for investors.”The decision reflects the government’s fiscal rectitude, but questions abound on the timing of the move — and its implications.“After resisting for 75 years, why does the government believe that the time is now right to commit the ‘original sin’ for which many emerging markets have suffered immensely,’’ asks Jahangir Aziz, economist at JPMorgan. ‘Original sin’ is a phrase coined by professor Barry Eichengreen to indicate a country’s weakness that leads to borrowing in a foreign currency instead of the local currency making it vulnerable. Borrowing in international currency usually lowers the cost of funds, but it also comes with risks of volatility and wild currency gyrations.Even before the ink was dry on the proposal, some investors uncorked the champagne. Yields on the benchmark bonds fell 16 basis points, pointing to receding concerns over crowding-out effects.“The move will ease the burden on Indian institutions to some extent in terms of funding the government’s borrowing programme,” says Jayesh Mehta, managing director at Bank of America Merrill Lynch.Central government borrowing still dominates India bonds. It raised Rs 5.1 lakh crore which was more than half of the total haul in FY13, show data from India Ratings. In FY20, the central share would be 33 per cent or Rs 4.7 lakh crore, with state government bonds offsetting the decline in federal bond sales.This crowds out the private sector, limiting investments.With the banking regulator nudging big corporates to borrow from the local bond market to reduce the risk on bank balance sheets, the North Block move should help local debt yields. “It will allow room for private sector borrowers to tap the domestic markets, while also setting a benchmark for Indian issuers abroad,’’ says Radhika Rao, economist at DBS Bank In a market where Germany and France are borrowing at negative interest rates, India may have chosen the right time to tap into global money hubs. India may be able to borrow at half the price it pays investors back home and join the likes of Indonesia, Malaysia and South Korea on the high table of global debt, but there are swings and roundabouts. Currently, the government pays about 6.70 per cent to raise long-term money locally.What appears to be easy money could turn very expensive if exchange rates weaken, as they did in 2013. The currency whiplash had stung many corporates with convertible overseas bonds.“Before 2013, Indian authorities encouraged more foreign funding by increasing approval of ECBs,’’ says JPMorgan’s Aziz. “At that time, corporates took the foreign exchange risk. We know how that story ended.’’ While global investors may be drawn to India’s growth potential they insist that macro prudence should be maintained.“The domestic macro backdrop could matter significantly,’’ says A Prasanna, economist at ICICI Securities Primary Dealership. “India has to find ways not just to fund the CAD (current account deficit), but to make CAD more manageable so as to reduce risks of sharp weakness in Indian rupee. It goes without saying maintaining low inflation would also be crucial.’’India has flattered to deceive in the past. It had its worst balance of payments crisis in 1991 where New Delhi had to go hat in hand to the International Monetary Fund . India has seen violent exchange rate gyrations during turbulences in the global economy.The political class blamed the Kuwait war for the 1991 crisis, although the seeds were sown in the 1980s, with fiscal deficit widening to 8.6 per cent in 1985 and breaching 9 per cent afterward. The Asian crisis was peddled as the reason for the currency crisis in the late 1990s, but the reality was that the deficit breached 10 per cent, leading to the Fiscal Responsibility and Budget Management Bill.The currency crisis of 2013 was no different, though it was blamed on Federal Reserve chairman Ben Bernanke’s taper tantrum. Fiscal deficit for the year 2013 was at 4.9 per cent, and CAD rose to 4.8 per cent in fiscal 2013.History is dotted with countries with borrowings in foreign currencies but were following imprudent macro- economic policies. Mexico, Thailand, South Korea and Russia have all had bitter experiences with international investors where Elliott Capital went as far as seizing Argentina’s naval vessel to recover dues. Economists believe the government is on track to narrowing the deficit, despite counter-arguments about the offbalance sheet mode of borrowing.“We don’t see the risk of a downgrade as the economy’s vulnerability due to macro risks has reduced,’’ says DBS’ Rao.How much would $10 billion move the needle in a market that speaks in trillions?Outstanding US dollar bonds for a country may be a tiny portion of its overall borrowings, but it has wider market ramifications. During soft interest rate regimes, investors would be liberal in lending to sovereigns, but would turn fairweather friends when the tide turns as Argentina, Turkey and Indonesia found out.“EME (emerging market economy) borrowers may be vulnerable if they have relied heavily on US dollardenominated debt securities, as international bond investors tend to retreat quickly when US rates rise,’’ Inaki Aldasoro and Torsten Ehlers wrote in a paper presented to the Bank for International Settlements.Policy making would have to be mindful of international investor priorities.Trading of sovereign bonds in overseas exchanges also brings in the responsibility of exchange rate management so that government’s liability doesn’t climb. Just like the sovereign yield curve would help companies price their borrowing, the conviction that the government would maintain the exchange rate would lead to unhedged borrowing by the private sector.While it exposes the nation to global pressures, India’s hard currency borrowing could even be adverse to domestic bond markets. With the government bearing the exchange rate risk, global investors who otherwise would have bought government bonds in Mumbai will now do so in London.“If India offers them a dollardenominated bond such that the investors no longer have to bear the currency risk, it is obvious that they will be more than happy to buy them,’’ says Aziz of JPMorgan. “But how will they fund that purchaseRs Chances are that they do so by selling their current holdings of rupee bonds. As a result there is unlikely to be material increase in total foreign budgetary financing. Instead, the government will cannibalise the rupee bond market and take on unnecessary currency exposure.’’ Borrowing in hard currency can be cheap, but it’s a double - edged sword with punishments for macro misadventure turning severe. President Bill Clinton’s advisor James Carville summed up the bond market beast thus: “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.’’ Macro economic management by future generations of politicians would decide whether the call to borrow in foreign currencies is a sin or a salvation.