Public debt plan - The Hindu

Public debt plan - The Hindu


Please read my response to the same story, mailed to The Economic Times on April 29, 2015:

29, 2015
Debt Match-Season I
This refers to the report
“RBI, Govt One All in Public Debt Match”(April 29). Intentions behind the
proposal for an independent Public Debt Management Agency ‘outside’ RBI and GOI
are indeed noble. 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 Ministry have understood the game and are working in tandem.
It would be expedient to
allow RBI to continue public debt management at least for another decade.
Reasons galore. 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 responsibilities.
G Warrier
, Thiruvananthapuram


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