For several decades, issuing an overseas sovereign bond has been the holiest of holy cows. Readers will appreciate how serious this analogy gets since I am using it in today’s environment.Many reasons are cited for the government not accessing global markets directly:1. Selling family silver to overseas investors;2. Subjecting India’s credit rating to the vagaries of global markets;3. Inducing undue currency risk into the government’s fiscal management and lastly, as pointed out in detail by ex-governor Raghuram Rajan, since global investment bankers, tainted by the lure of the lucre, have been strongly lobbying the government and RBI to issue sovereign bonds , there must be something to worry about there.All through the crisis of the early nineties and even the “taper-tantrum” of 2013, we steadfastly refused to issue sovereign bonds overseas. In the nineties we actually did mortgage family silver, when we raised money against our holdings of gold. That too, only when we were down to forex reserves of just a few months’ imports and staring at multi-lateral agency loan defaults. In 2013, the government and the RBI did consult extensively on what would be the best form of raising foreign currency and more importantly, bringing back confidence for the rupee and the economy amongst overseas investors.During a short period in 2013 India lost circa $20 billion in forex reserves thanks to sales of investments in debt by foreign portfolio investors (FPIs). This was enough to send the Indian rupee into a downward spiral and only the issue of (highly leveraged) FCNR deposits brought back sanity to markets.So, is an overseas sovereign bond any worse than allowing FPIs to invest in sovereign bonds onshore on a fully repatriable basis as we already do? Large investments in onshore debt by FPIs can destabilise domestic forex markets, liquidity and even equity markets at the time of global or domestic stress. To that extent, a sovereign bond issuance overseas, would limit the impact of any global or local stress on domestic markets.If denominated in Indian rupee, it would even nullify the currency risk which otherwise the government would have to bear, besides being in sync with our oft-stated objective of internationalizing the Indian rupee.Hence, an overseas sovereign bond issuance, denominated in the Indian rupee may be a better option than opening up the onshore rupee sovereign bond market for higher and higher FPI participation.However, this all seems perfectly logical in times of normal market behavior. When markets are in turmoil, debt issued and traded overseas would be worse hit than onshore debt. The government and regulators always have the ability to support and bring orderliness back to domestic markets, which however, is not true for overseas markets.Therefore, at such times, valuation of overseas bonds would be hit much worse than domestic ones. Also, the ability of the government to issue more such overseas bonds would be severely impaired. Onshore sovereign debt can always be repaid by printing money, which is not possible in respect of overseas debt, which would have to be repaid in hard currency. Several Latin American and East European countries have learnt this the hard way.One of the reasons cited for issuing overseas sovereign bonds is their cheaper cost. This argument has been demolished by enough commentators on the point of hedging costs being ignored, hence I will not go into it. Offshore bond issuances will remain more expensive than domestic ones on a fully hedged basis, for several reasons which we don’t have the space to go into now.On the positive side, as noted by many analysts, modest-sized sovereign issuances overseas, would help establish a fair market price for Indian debt, help other Indian issuers price their issuances more easily, help establish a credit default swap market for the Indian sovereign, which in turn would augment the liquidity and improve the pricing for all Indian debt overseas. It would open up an investor universe that finds Indian markets and FPI rules too difficult to navigate.Hopefully, it would also instil discipline and consistency into income recognition, taxation and other regulations that have been frequently tinkered with by the powers that be in India.In conclusion, I would suggest that the government along with the RBI consider an appropriate amount of sovereign debt that may be held by foreigners (the aggregate of FPI investment limit for domestic sovereign debt and sovereign date to be issued overseas) over 3-5 years.To start with, the government could consider issuing overseas sovereign bonds to the extent of a part of the unutilized amount of FPI limits (say $10 billion of the currently unutilised $27 billion). This would limit reliance on overseas investors as well as keep the impact of such investments within manageable proportions and no worse than what we already face in terms of FPI investments. If there is sufficient demand for such issuances, then the aggregate limit may be gradually increased. Hopefully, this solution should satisfy the proponents and the naysayers.(The author is partner at SIONIC, a global financial advisory firm)