With the second wave having knocked India badly, the revival will take longer than anticipated. Both the Centre and the States will be under severe pressure to pay salaries, pensions, service old debts, and spend on establishments, with the shrinking budget receipts. Corporates and financial institutions, on the other hand, will be wary of taking or extending credit in these uncertain times. Amidst this all, will be the phenomenal expenditure that would be incurred to tackle the ongoing pandemic.

According to the International Monetary Fund, India’s debt-to-GDP ratio preceding the pandemic was 74 per cent, which fell to almost 90 per cent by end of 2020. Given the onslaught of the second wave and possibility of widening deficits and contraction in economic activity, things look extremely bleak this year as well.

In such a situation India could consider issuing ‘Çovid bonds’ which could be like a tax-free fixed-income product. The proceeds from them could be spent on projects that help mitigate the pandemic situation. The bond could also be made more attractive by offering a higher coupon rate higher than benchmark government securities.

It may be recalled that the US too had issued ‘Defence Bonds’, during the Second World War to finance military operations. Since these bonds were offered with a rate of return below the market rate, emotional appeals were made to patriotic citizens to lend the government money. There has been some global issuances after the pandemic to address the unforeseen economic and social disruptions.

Global experience

Israel and the Philippines had issued $5 billion and $2.35 billion sovereign bonds respectively, to fight Covid-19 after confirmed cases reached 100 in their countries. Indonesia has raised $4.3 billion of ‘pandemic bonds’ which is the first 50-year dollar-denominated bonds ever issued by an Asian nation, to help combat Covid-19. Peru too responded quickly by issuing similar bonds.

Amongst the multilateral development banks, the African Development Bank (AfDB) had issued a $3-billion denominated “Fight Covid-19 Social Bond” in March 2020. During the same time, The Inter-American Development Bank (IADB) issued a $2 billion bond to explicitly support the progress toward Covid-19 under the SDG 3: Good Health and Well Being framework.

As far as financial institutions are concerned, the Bank of China issued a Covid-19 related bond in February 2020. In May 2020 amidst the pandemic, Bank of America launched a $1-billion, four-year corporate social bond to address the global health crisis.

Another very interesting aspect of the ‘Çovid bonds’ is that its purpose can suitably be traced. It may be noted that since the introduction of green bonds, and social and sustainable bonds, earlier last decade, there has been a larger acceptance of the former over the latter, largely because measuring their impact is comparatively easier.

The Centre, the various banks and financial institutions, and the corporates alike, should look at tapping the bond market by issuing similar Covid-19 bonds while allocating it to the healthcare sector, develop testing capacities, setting diagnostic facilities, treatment, alleviate supply chain disruptions, and even research new vaccines.

While sovereign and international agencies have issued Covid-19 bonds, there is a huge opportunity for large Indian corporates, especially those in the pharmaceutical and healthcare sector, to explore such financial possibilities instead of relying on government support to counter the adverse effects of the pandemic.

A country, as vast as India, has often suffered from healthcare infrastructure issues. The pandemic has forced an overhaul of the healthcare infrastructure, after the bottlenecks got exposed threadbare. This naturally provides an opportunity for issuing Covid-19 bonds.

The writer is a Senior Economist, India Exim Bank. Views expressed are personal

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