Terminologies like government securities or bonds are one of the biggest and most essential ways to raise capital in the market by the State and run the economy. When a government decides to raise capital in foreign space, they may issue the same in their currency or the most reputed one in the domain. For example, India issues Masala bonds denominated in Indian Rupees. It somewhat reduces the risk of volatility exchange rate presents. But what Pakistan did recently has alarmed the Indian subcontinent up to some extent, especially India. Pakistan has started issuing Panda bonds again to manage its economy and the deficit it is facing at its ends.

What are Panda Bonds?

Panda Bonds are generally denominated in the form of Chinese Renminbi. These bonds are generally sold in the People's Republic of China. The very instance of its issuance occurred in 2005 when International Finance Corporation and Asian Development Bank raised the same at different yield rates. Even institutions like New Development Bank have raised the first SDG panda bond recently in the month of March 2021 in emerging markets. During this issuance, a capital of 5 billion Renminbi was raised at a yield rate of 3.22%. The main purpose for raising this bond is to implement 17 SDG goals in the NDB member countries. Panda bonds have no doubt a great grandeur in China's reputation on the global platform. In 2007, the Chinese onshore bond market was merely 2 trillion USD which has expanded to almost 12 trillion USD by 2018.

Why does Pakistan have to issue Panda Bonds?

First of all, Pakistan has not done it for the first time. In the year 2018, just after Imran Khan formed his government, one of the first decisions by his Cabinet was to raise capital in the Chinese market in the form of the Renminbi. The economy of Pakistan has hit several rifts. Pakistan was one of the South Asian countries that requested for IMF bailout during this pandemic period. Pakistan's economy is highly dependent on Chinese funding, and China is the largest trading partner of Pakistan. Apart from this, the biggest reason to issue such bonds is to bridge the gap between its revenue and expenditure it is having at this moment.

Panda Bonds & Impact on India

A big chunk of these Panda bonds will be somewhere used for Pakistan's social service sector and infrastructure development. However, economists and political experts in Pakistan ignore China's debt to GDP ratio. China's debt to GDP ratio will someday in the future expand Chinese penetration or keep projects on Chinese lease for a longer period (say, Hambantota Port). Any non-payment after these bonds pass maturity time will become a big burden for India. India is already raising issues for building CPEC in a conflicted area of Gilgit Baltistan. Hence, a mishap to Pakistan's economy will lead to Chinese occupation on these lands and make this land conflict a trilateral rather than a bilateral one. Apart from this, China may name some terms related to trade that may stop India's export of items to Pakistan.

What does India need to do?

For China, it is no less than a soft power to allow South Asian countries to issue such bonds in their market. With this, forcible Chinese allegiance will witness an increment in the future. Hence, India's neighbourhood will be subsumed into Chinese puppets if there is no intervention by India. India had recently won humanitarian accolades when it exported 1 million tonnes of bio-fertilizers to Sri Lanka after it rejected Chinese fertilizers, which were of pretty low quality. With Pakistan, India has to take a softer turn somewhere and shift to Gujral doctrine rather than regional hegemony. For this purpose, an approach like neo-functionalism will come as a requirement where India can showcase its soft power, if not opening its little deep pockets. 

Conclusion

China's soft power of allowing other States to issue Panda bonds can ruin those economies that are unable to stabilize themselves. Apart from this, the concerning figures like the debt to GDP ratio in China can bring actions that won't be a black swan for those countries. After observing such a situation, India should revitalise Gujral Doctrine 2.0 and revive neo-functionalism to give a cushion to Pakistan's economy