Jaitley rolls back proposal on public debt - The Hindu

Jaitley rolls back proposal on public debt - The Hindu



My article on RBI@80 published in The Global ANALYST, May 2015 concluded with the following observations on PDMA:

Debt Management Agency
As the word ‘rift’ was
used by media in the context of transfer of public debt management
responsibility from RBI to another ‘independent’ agency, a short discussion of
the proposal will be in order.
Intentions behind the
proposal for an independent Public Debt Management Agency ‘outside’ RBI and GOI
may be noble. The institutional structure and policy approach of 1940’s(the
aggregate market borrowings of the government of India from 1940-41 to 1945-46
was Rs1,157 crore and in the first half of 2015-16, GOI has projected a
borrowing programme of Rs3.60 lakh crore!) and the present needs are different.
Within RBI the skill development and acquisition of expertise for managing the
core functions have been an ongoing process.
But, beyond expertise,
ultimately, as the agency will have to handle 
‘debt’ which is dependent on credibility and clout of the borrower, for
the moment, it is better to continue status quo. Every time a new initiative or
decision is taken affecting financial sector, we have a legacy of vested
interests trying to tilt the decision in their favour by putting a wedge
between GOI and RBI. It is comforting to see that the present RBI Governor and
Finance Minister have understood the game and are working in tandem.
For several reasons, it
would be expedient to allow RBI to continue public debt management at least for
another decade. One, there is no retail market for government securities and
therefore government borrowing is dependent on commercial banks(which are
mandated to maintain a certain percentage of their assets in ‘cash, gold or
unencumbered approved securities..’) and financial institutions. Two, Reserve
bank of India has been managing public debt for several years well and this has
helped the institution develop in-house expertise and skill which cannot be
easily ‘transferred’ to a new organisation. Three, there is no guarantee that a
new agency will be in apposition to function independent of GOI and RBI for
reasons One and Two!
As RBI Governor and
Finance Minister are on the same page in regard to having an independent Public
Debt Management Agency, perhaps GOI could consider setting up a statutory body
to initially handle management of surplus funds and borrowings of public sector
organisations, management of state government borrowings (now being handled now
by RBI on an agency basis(Section 21A of RBI Act) and such other
responsibilities GOI may entrust to that organisation.  As the organisation grows, it can help in
building a retail market for government securities and gradually relieve RBI of
Public debt management."


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