No worries over govt debt, says status paper

No worries over govt debt, says status paper: ‘Share of short-term debt within safe limits’

My VIEW:
February 7, 2016
Public Debt Management
This refers to the report “No worries over govt debt, says status paper” (The Hindu Business Line, February 4). RBI, in a paper on debt management published in December 2015, stated that ‘the ability of domestic market to finance government operations is a source of strength of the debt portfolio which is insulated from the currency risk’ and  the strategy framework was geared towards continued issuance to domestic investors while focusing on widening the investor base’.
It is well-known that the domestic investor base is dominated by commercial banks in short to medium tenor securities and by insurance companies and provident funds at the long end. Though the share of the commercial banks has been declining over time and with the entry of co-operative banks, regional rural banks, pension funds, mutual funds and non-banking finance companies, the institutional investor base is getting diversified, it should be a priority for GOI and RBI, to further diversify the investor base and make G-Sec a ‘marketable’ financial instrument based on its own strength. At the moment, dependence on mandated investment by institutional investors camouflage most of the weaknesses of government securities.

M G Warrier, Mumbai 

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