Joining the debate over hiving off the debt management activities of the Reserve Bank, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan has favoured setting up a separate Debt Management Office (DMO) under the aegis of the central government.
"There are many countries in the world where the public debt office is managed only by the government. Therefore, even here, the Reserve Bank can continue to play its role as a monetary authority, without having the DMO under it," the PMEAC chief told PTI.
The Reserve Bank has opposed setting up a DMO under the Union government to manage sovereign debt, saying only the central bank has the requisite expertise to manage market volatility.
"Only central banks have the requisite market pulse and instruments to aid in making contextual judgements which an independent debt agency, driven by narrow objectives, will not be able to do," RBI Governor Duvvuri Subbarao said at a meeting of the Central Bank Governance Group in Basel.
However, Rangarajan, a former RBI Governor, said times have changed and the government could take up the job if it is "adequately prepared to undertake that function".
He said that earlier, the government required the helping hand of the RBI to enable it to raise the required amount, because prior to 1991, the borrowing rate of the government was well below the market rate.
"But things have changed since then. According to the Fiscal Responsibility and Budget Management (FRBM) Act, the RBI is not supposed to be in the primary market," he said.
The government has proposed to set up an independent Debt Management Office, aimed at separating the RBI's roles as the decider of the interest rate in the market and being the banker to the government.
At present, both the government's debt and fresh borrowings are managed by the central bank.
In his 2011-12 Budget speech, Finance Minister Pranab Mukherjee had mooted the proposal to introduce the Public Debt Management Agency of India Bill.