NEW DELHI (TIP): The government is going ahead with its plans of setting up a Public Debt Management Agency (PDMA) and will start a dialogue with the Reserve Bank of India (RBI) after the budget session of Parliament.
Sources said the government plans to proceed with the setting up of PDMA in a “phased manner” to ensure that the transition is smooth and there is no disruption.
Last week, finance minister Arun Jaitley sought to comfort the RBI, which had protested against government’s plans to take away some of its powers. The PDMA had emerged as key sticking point in the relationship between the RBI and the Finance Ministry.
Sources said the government had examined several options for a smooth transition of the borrowing programme from the RBI to the new agency but had to drop the idea as several complications were pointed out. One of the suggestions that had emerged was to use the manpower of the RBI, which handles borrowings, to do the job on behalf of the new agency. The move to have a separate agency to handle public debt has been in the works for more than a decade but progress has been limited.
“It was pointed out that there would be several complications. We will start the negotiations with the RBI for setting up of the PDMA in a phased manner,” said an official, who did not wish to be identified.
Initiating the debate on the Finance Bill, Jaitley had announced his intent to drop amendments to the RBI Act, which would have taken away the central bank’s role in regulating government borrowings by setting up a new Public Debt Management Office. The plan to transfer some of RBI’s powers to the Securities and Exchange Board of India had also been dropped.
The moves followed a protest by RBI governor Raghuram Rajan, which resulted in Jaitley stating that the government would ready a roadmap to set up a debt management agency.
“Since 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,” Jaitley said. The FM had proposed setting up of the PDMA in his 2015-16 budget speech.
“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,” FM had said.