BackGovt panel to look into forming public debt management agency
Move sets the stage for separating public debt management duties from the Reserve Bank of India
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New Delhi: Setting the stage for separating public debt management duties from the Reserve Bank of India (RBI), the Narendra Modi government on Tuesday constituted a task force to look into the setting up of an independent public debt management agency (PDMA) in line with the recommendation of the financial sector legislative reforms commission (FSLRC).
The government has also set up three other task forces to look into the creation of a financial sector appellate tribunal (FSAT), a financial data management centre and a resolution corporation as recommended by FSLRC, the finance ministry said in a statement.
FSLRC, in its report submitted last year, had recommended a single draft law—Indian financial code—that will subsume most of the existing legislation governing the financial sector, along with a host of other steps to streamline the financial regulatory system.
The task force on PDMA will be chaired by D. Swarup, former chairman of the Pension Fund Regulatory and Development Authority. The terms of reference of the task force include reviewing international best practices for debt management, detailing the structure of the new PDMA, suggesting a road map for moving from the current debt management practices to this PDMA for managing government debt and doing a cost-benefit analysis of such a move, along with comprehensive details of the costs involved in setting up a separate agency. The force has been given one year to complete its task.
At present, managing government debt is in the domain of RBI. Governor Raghuram Rajan, in an interview last year, said that at the moment, the central bank is the most capable to handle government debt though he has not opposed the government’s move to set up a separate debt management office.
Net borrowing by the government in the year to March is estimated to be around ₹ 4.6 trillion, as against the ₹ 4.5 trillion in the year-ago period.
A separate debt management office has been a bone of contention between the government and RBI, with the central bank under former governor D. Subbarao of the view that it is best placed to manage government’s debt given India’s large fiscal deficit and consequent large borrowing programme.
FSLRC, however, in its report, had argued that unifying the debt management functions will result in cost effective management of government debt by a “specialized, unified and independent agency" and provide a comprehensive picture of the central government’s liabilities.
At present, while RBI manages the market borrowing programme for central and state governments, the central government manages external debt.
In separate notifications, the finance ministry said the task force on the creation of a financial data management centre will be chaired by former RBI deputy governor Subir Gokarn, that on FSAT will be headed by former high court judge N.K. Sodhi, and the task force on resolution corporation will be headed by M. Damodaran, former chairman of markets regulator Securities Exchange Board of India.
While the committee on financial data management centre will look into the creation of a repository of all financial regulatory data, the committee on FSAT will look into the transition plan to transform the Securities appellate tribunal into FSAT. A resolution corporation will help in resolving financial firms before they reach insolvency.
“Till now, the major problem there was a conflict as RBI was managing debt, played the role of a banker and at the same time decided monetary policy. In developed economies like the US, the central bank is more of a regulator and does not perform debt management functions," said Devendra Pant, chief economist at India Ratings and Research. “Debt management is a specialized area where one has to keep track of maturity of the borrowings and the yields and the overall debt."
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