Leveraging the debt office | Business Standard

Leveraging the debt office | Business Standard

• Like personal borrowings, if well managed and well-balanced between consumption and asset creation purposes, public debt will serve developing countries like India well. Presently we borrow for whatever purpose credit is forthcoming and spend tax payers’ money and windfall gains from sources like spectrum auction, sale of mining rights etc and divestment of holdings in public sector companies without any regard to the sources of funds or respect for national priorities. We borrow amounts as small as $300 million from abroad to fund microfinance when individuals in India can afford building monuments and houses worth much more than that and thousands of crores of rupees flow down the drain in celebrations. National level financial institutions talk about lending to small borrowers at interest rates as high as 25 to 30 per cent per annum while banks pay interest on deposits at 3.5 to 7.5 per cent per annum. The gravity of the situation is compounded by the unacceptably high level of corrupt practices. Someone should initiate a comprehensive study of sources and uses of public funds in India. Better still, if the study could cover funds raised from public by banks and corporates also. But who will listen? The present move from the political leadership is to usurp the power to borrow, from an institution which is still left with some semblance of integrity. On separation of the debt management office from the central bank, the consistent RBI position has been that the central bank would be in a better position to hold the responsibility of debt management. In the present scenario, when RBI and other regulators have to reiterate day-in and day-out that they enjoy statutory autonomy, one can only think of the unenviable position of a Debt Management Office ‘independently’ functioning directly under FM’s control. Questions of autonomy apart, time is not yet opportune to experiment with new institutions for debt management when expertise already developed by RBI in this work area is not in dispute. When efforts are on to ensure financial stability, let us not destabilize existing institutional framework in the financial sector, merely in the name of following examples abroad. Unlike the recent experiences in disinvestment management by government, RBI has been managing smoothly the public debt of central government under Section 21(2) and that of state governments by agreement as provided for under Section 21A of the RBI Act, 1934 for several decades. It is in the interest of country’s financial stability which is the basis for economic development, not to disturb the present arrangement at least until the government is in a position to take up the comprehensive review of the monetary system envisaged in the preamble of the RBI Act. At one stage it was alleged that the human resources and manpower issues were the ground on which Reserve Bank of India opposed the shifting of debt management to the finance ministry. It was common knowledge then(and now it is confirmed) that even if the work is transferred to them, the finance ministry will have to initially depend on the in-house expertise developed in RBI over decades of effort. Having said that, there is no denying the fact that trade unions and finance ministry had focused on HR-related issues. As government under the existing disposition has enough authority to ‘direct’ RBI in an eventuality, there is no need to hurry through this destabilizing move at a time when more attention should be paid to clear the mess which is already there on the drawing board of Finance Ministry.