Govt looks to expand debt management cell as PDMA remains in backburner

A top govt official told Business Standard that internally, the plan for PDMA is unlikely to be revived

In 2015, the Finance Ministry under Arun Jaitley was ready to bring legislative changes required to form the Public Debt Management Agency (PDMA), an independent body which would plan and manage the central government’s borrowings. The changes were in the Finance Bill 2015 along with the proposal to create the Monetary Policy Committee.

However, while MPC became a reality, the plan for PDMA was put on the backburner after disagreement with the Reserve Bank of India over its structure and functioning.

Officially, it was never truly shelved, and the Finance Ministry instead created an interim Public Debt Management Cell (PDMC). As per the Ministry’s own website, it was an stop-gap arrangement prior to the setting up of an independent and statutory debt management agency, namely the PDMA.

For seven years, this was the arrangement, and it is set to continue. The turmoil in global markets due to the war in Europe and their impact on debt yields have given an additional reason for Finance Ministry and RBI to keep debt management responsibilities to themselves.

A top government official told Business Standard that internally, the plan for PDMA is unlikely to be revived.

“The PDMC does the same job which PDMA was supposed to do. It is staffed with officials from the Finance Ministry and the RBI’s Delhi office. There are regular meetings and their inputs and research form the foundation of the centre’s borrowing plan in any given year,” the official said.

“We are in a state of economic flux with so much global uncertainty. In such a context, the PDMC is as good as a separate authority for debt management,” the person added.

The PDMC comes under the Finance Ministry’s Department of Economic Affairs. Ajay Seth is the Secretary leading that department.

The official quoted above said that the government will add to the PDMC’s capacity, by bringing in closer coordination and real time analysis of the markets, centre’s fiscal position, means to finance the deficit like small savings and other data from various agencies.

“We are trying for greater integration between PDMC, RBI, National Savings Institute, Aids Accounts and Audits division of the ministry and other such bodies,” the official said.

The PDMC’s role is strictly advisory and its functions include planning borrowings of the centre, manage the centre’s liabilities including NSSF, contingent liabilities, monitor cash balances, improve cash forecasting and promote efficient cash management practices.

It also advises other divisions in Finance Ministry on matters related to external bebt involving external borrowings through multilateral and bilateral sources in terms of cost, tenure, currency, hedging requirements, etc, and monitors developments in foreign exchange markets.

It also advises on fostering a liquid and efficient market for g-secs, on matters related to investment and capital market operations and undertake research work related to new products development, market development, risk management, debt sustainability assessment, other debt management functions, etc.

The PDMC is tasked with developing a database system for collecting and maintaining comprehensive database of Government of India liabilities on a near real time basis and shall be responsible for publication of relevant information.

Among its work, a quarterly report on public debt management is released every three months. The one on the January-March FY22 quarter has not been released yet.

In September, members of the Parliamentary Standing Committee on Finance visited RBI. Former Prime Minister Manmohan Singh also accompanied them. As per sources, there were discussions on separation of the debt management function from the RBI.

Many veteran policymakers have warned against the move for the time being, as India recovers from three waves of the Covid-19 pandemic and finds itself in a uncertain geopolitical situation due to the war in Europe.

These include 15th Finance Commission member NK Singh. “This is not the opportune time to settle a debate over the setting up of an independent debt office since there is enhanced borrowing plan for the current fiscal year and the yields of government papers are also supposed to be kept within the tolerance level,” Singh had said last fiscal year.