The government aims to have a separate debt office functioning from the Reserve Bank of India, but in phases, a key Finance Ministry official said here on Thursday. The proposal, once fully implemented, will trim some of the Reserve Bank of India’s power.

“Our plan is to bring in the Public Debt Management Agency (PDMA) in phases. Discussions in this regard with the RBI will take place soon after the session,” the official said.

This stand comes soon after Finance Minister Arun Jaitley withdrew proposals relating to setting up such an agency from the Finance Bill on April 30. While doing so, he did clarify that the government is committed to unifying the financial market both by making government securities a part of this market and creating a proper bond-currency derivative nexus.

Key factor

In his Budget speech, Jaitley had said that one vital factor in promoting investment in India, including in the infrastructure sector, is the deepening of the Indian bond market. “I intend to begin this process this year by setting up a Public Debt Management Agency, which will bring both India’s external borrowings and domestic debt under one roof.” The proposal was to hand over this regulation to market regulator SEBI.

Although Ministry officials earlier claimed that the proposal was included in the Budget only after proper discussion with the RBI, the official said that Mint Street was a little uncomfortable with the idea of separating debt management.

“Also, they have all the experience of managing the market and the government itself would have taken personnel on deputation from the central bank to run the agency,” the official said, adding that all this prompted ‘status quo’ for the time being.

The official, however, refused, to respond to a query on what the middle path was for withdrawing the proposal. Meanwhile, news agency Reuters, quoting unknown government and party sources, said Prime Minister Narendra Modi backed RBI in this turf war, after which Jaitley dropped the proposal from the Finance Bill. The amended Bill has been approved by Parliament.

RBI’s move

The official said that committee after committee had favoured separation of the debt office from the RBI.

In fact, the proposal of a separate management of government debt from the RBI was first mooted by the central bank in its Annual Report 2000-01.

Subsequently, the Percy Mistry Report of 2007 and the Raghuram Rajan Report of 2009 both argued in favour of separating debt management from the RBI.

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