Top officials of the Reserve Bank of India (RBI) are expected to meet finance ministry mandarins this month to finetune the retail market for government debts and replacement of the existing Public Debt Act to allow state governments to access the bond market to raise funds at competitive interest rates. The reforms in the debt market were a set of measures announced by finance minister Yashwant Sinha in the Budget this year to develop it as an alternative to the equities market, especially as a source for mobilising funds for the infrastructure sector.
But while the subsequent turmoil in the equities market has made the debt market even more attractive, the fire fighting by the government has left it little time to move ahead with the reforms.
The ministry has asked the RBI and other agencies to inform it of the progress made in implementing the Budget promises ahead of the meeting of the monitoring committee. The committee will report to the finance minister on the progress made in implementing the reforms which, according to sources, has been minimal.
However, after a two-year delay the government is likely to introduce the replacement of the Public Debt Act by a government securities legislation in the Winter Session of Parliament, since all the states have signalled their acceptance to the measures. As per the new legislation, the states will be able to raise resources from the market by issuing papers like that of the central government and also get them rated by agencies. So far the banks have lent to states at a flat coupon rate just a few basis points above the central government rates for a ten-year maturity bond. The replacement of the Act was promised in the Budget for 2000-2001 also.
According to sources while a Clearing Corporation for the debt market was set up in June with the State Bank of India as the chief promoter and an authorised capital of Rs 50 crore, nothing further has happened to make it active. There has also been little progress in introduction of an electronic Negotiated Dealing System for auctions and secondary markets trading in government securities on a real-time basis. As per the route map, all transactions in gilts, treasury bills, repos and even derivatives are expected to be made part of the system eventually.
The electronic bidding system is essential for allowing retail access to government securities. The Budget said:
