After much dilly-dallying, the finance ministry on Wednesday said it will take away from the Reserve Bank of India (RBI) the powers to manage public debt or government borrowings in about two years and has set up a cell for an interim period to smoothen the transition so that markets do not witness disruptions.
The move is in line with steps announced by the government recently such as inflation targeting and setting up of Monetary Policy Committee to streamline the functioning of RBI.
The Public Debt Management Cell (PDMC), to be housed at RBIs Delhi office, will be upgraded to a statutory Public Debt Management Agency (PDMA) in "about two years", the ministry said in a circular.
PDMC would have only advisory functions to avoid conflict with statutory functions of RBI, the circular said.
The cell has been tasked with planning government borrowings, including market and other borrowings, like sovereign gold bond issuance. Other functions of PDMC are managing governments liabilities, monitoring cash balances, improving cash forecasting, fostering liquid and efficient market for government securities.
It will also advise the government on investment, capital market operations, administration of interest rates on small savings, among others.
PDMC has also been asked to develop an Integrated Debt Database System (IDDS) as a centralised database for all liabilities of the government. The Joint Secretary (Budget), Department of Economic Affairs would be the overall incharge of the PDMC.
"The transition from PDMC to PDMA would be implemented by a joint implementation committee (JIC)...," the circular said.
The finance ministry already has the Middle Office in the Budget Division, which handles formulation of a longterm debt management strategy, annual debt issuance and periodic calendars of borrowing, forecasting cash and borrowing requirements. It also lays down a comprehensive risk management framework. This office will be subsumed into PDMC "with immediate effect", the circular said.
JIC would operate under the Monitoring Group on Cash and Debt Management with the Department of Economic Affairs secretary and a RBI deputy governor as co-chairpersons. The PDMC would have 15 staff members.
RBI, through the Internal Debt Management Department (IDMD), manages the public debt of the central and state governments. The department also regulates and supervises the Primary Dealers System and has the responsibility for developing G-secs long been a bone of contention between the finance ministry and RBI.
Former RBI governor Raghuram Rajan had said PDMA should be independent of the central bank and government. "Because it puts some discipline on the government debt process and also frees regulation of the need to create some sort of financial impression," he had said. PDMA is expected to function that way.
In his 2015 Budget speech, Finance Minister Arun Jaitley had proposed to set up PDMA to deepen the Indian bond market. "I intend to begin this process this year by setting up a Public Debt Management Agency (PDMA) which will bring both Indias external borrowings and domestic debt under one roof," he had said. However, he had then planned to set it up through a finance Bill, which was later dropped. Setting up of PDMA will require amendments to the RBI Act. However, the mid-year economic analysis of 2015 had said PDMA will be set up through an executive order till a Bill is passed by Parliament.
Developed countries such as US and UK have independent public debt offices.
Business Standard New Delhi,06th October 2016
Comments
Post a Comment