Bonds rallied after India, Asia’s third-largest economy, said it may tap international debt markets for as much as $10 billion (Dh36.72bn) in its first foreign sovereign bond sale. The proposed move is seen by analysts as a way for India to raise funds amid a slowing economy. “The government’s issuance of external debt may ease concerns about crowding-out in the local currency market,” said Sonal Varma, chief India economist at Japanese investment bank Nomura. The plan has helped bonds continue their rally from Friday, with yields of India's benchmark 10-year government bond down by 11 basis points to 6.59 per cent in afternoon trading on Monday. “The fact that the government will now be seeking external funds for sovereign needs reflects a fundamental shift in the budgeting process and in the budgeting philosophy in our view,” said Abheek Barua, the chief economist at HDFC Bank, one of India's biggest private lenders. “The opening up of this route should benefit the bond market in the long term. More foreign inflows on this account should also lead to some gains in the rupee.” Investors were concerned about the government's heavy borrowing in local markets. But on Saturday, the country's economic affairs secretary Subhash Garg told Bloomberg that there were plans for an overseas bond sale which would amount to not more than “10 to 15 per cent of the total borrowing, which makes it [approximately] $10bn”. He said there was a huge appetite for Indian debt in the overseas market and that more details would be announced in September. But Ms Varma pointed out that “it could take some time for the government to come to market”. The announcement followed India's finance minister Nirmala Sitharaman in the annual budget on Friday outlining plans for the country to sell bonds overseas. “India’s sovereign external debt to GDP is among the lowest globally at less than 5 per cent,” Ms Sitharaman said as she presented the budget. “The government would start raising a part of its gross borrowing programme in external markets in external currencies.” She added that would have a knock-on positive impact on demand for government securities in the Indian market. R K Gurumurthy, the head of treasury at Lakshmi Vilas Bank, said the overseas bond plans “should help reduce cost of borrowings for the government”, describing it as a “watershed event”. “There has to be regular issuance of these bonds so that it creates sufficient liquidity for investors overseas,” he said. India's government under prime minister Narendra Modi, who was re-elected for a second term in a landslide victory in May, is aiming to almost double its economy to $5 trillion gross domestic product by 2025. In its budget, it announced plans to invest heavily in infrastructure as it strives to expand its economy, which slowed to a five year low of 6.8 per cent in the last financial year. At the same time, Ms Sitharaman surprised analysts by revealing that the government was lowering its fiscal deficit target to 3.3 per cent of GDP from 3.4 per cent, which has also lent support to bond markets.