Are Centre and RBI on a collision course on debt management agency?

 The Centre and the Reserve Bank of India seem to be on a collision course over the issue of public debt management. While the RBI favours continuing with the present system where it is in charge of debt management, the Government wants to set up another agency.

According to the proposal in the Budget, the agency will issue government securities, and maintain and manage the register of holders. It will also purchase, re-issue and trade in Government securities and advise the Centre on aspects of contingent liabilities and cash management. The RBI is to provide all information and assistance to the agency.

“One vital factor in promoting investment in India, including in the infrastructure sector, is the deepening of the Indian bond market, which we have to bring at the same level as our world-class equity 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,” Finance Minister Arun Jaitley said in his Budget speech.  

However, in a speech last year, HR Khan, Deputy Governor, RBI, had observed that the entire concept of an ‘all-in-one debt office’ is a theoretical construct rather than a real organisation. “It is important to note that sovereign debt management is much more than a mere resource-raising exercise especially in a developing country context like ours. The size and dynamics of government market borrowing has a much wider influence on interest rate movements and systemic liquidity. An autonomous Debt Management Office, driven by specific objectives exclusively focusing on debt management alone, may not be able to manage this complex task involving various trade-offs,” Khan had said.

Underscoring the fact that the process of managing public debt is an onerous responsibility, with implications for financial stability in the short to medium term and inter-generational equity in the long run, Khan said the RBI has discharged its mandate of managing public debt efficiently and effectively. 

“There is merit in continuance of the present institutional arrangement. If at all the separation of debt management from the central bank has to be effected, it should be preceded by a well-thought-out strategy focussing on perfect co-ordination among the Debt Management Office, the Ministry of Finance and the Reserve Bank of India,” Khan said. 

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