Government of India drops plan for separate debt management agency

The Dollar Business Bureau

In a move that creates comfort for the Reserve Bank of India (RBI), the Ministry of Finance, on Thursday, sought to drop from the Finance Bill 2015, the proposal to set up a separate Public Debt Management Agency (PDMA), outside the ambit of the RBI. Finance Minister Arun Jaitley, has said to have made a statement to this effect while initiating a debate on Finance Bill in Lok Sabha on Thursday. The move comes in view of the RBI’s role as a government’s fund raiser and a money regulator in the Indian economy. However, the ministry’s consultations are on with the RBI over the preparation of a roadmap to pursue a separate debt management agency in line with the global practice in the later stages. "Since the RBI has been handling public debt management, the government, in consultation with the RBI, will prepare a detailed roadmap separating the debt management function and the market infrastructure from the RBI and having a unified financial market," said Jaitley, according to the sources. In the Union Budget for the current financial year, the Finance Ministry has made a proposal for setting up an independent body—PDMA— to manage the government debts and shift the powers of regulation of the same from the RBI to the market regulator Securities and Exchange Board of India (Sebi). The RBI had questioned the government’s move and a group of the central bank officials had also written to the lawmakers and chief ministers of states expressing concern over the government’s move. While the ministry had backing from experts who viewed the setting up of PMDA would manage public debt, help lower borrowing costs, expand bond markets by attracting retail investors and improve the transmission of monetary policy, RBI officials felt the move could have created unwanted interference in the monetary policy, besides crippling the central bank, say sources. The RBI and the Finance Ministry also have different views on issues like lowering of interest rates, kick-starting of growth, among others.    

May 1,  2015 | 3:50 pm IST.