An independent debt management office (DMO), to handle the sovereign debt of the government, is likely to be fully functional by the end of the next financial year.
The finance ministry would try to table a Bill to this effect in the upcoming winter session of Parliament. The ministry has sent the draft legislation to all stakeholders, including the Reserve Bank of India (RBI), and the comments are expected shortly. If all the stakeholders are on board, the ministry will seek the Cabinet’s nod to seek Parliament’s approval so that DMO can become operational in 2012.
RBI has often voiced its discontent, on the proposed move of shifting debt management functions under its aegis to the North Block. While, a finance ministry official said all the differences with the central bank have been ironed out, the central bank has yet not publicly supported the move.
“We are targeting the winter session for Public Debt Management Agency of India Bill. We need RBI’s comments for drafting legal provisions and various other technicalities. Our aim is to make DMO operational towards the end of the next financial year (2012-13),” said a finance ministry official.
Any objection by RBI, now, may scuttle the chances of introducing the Bill. The finance ministry, however, has said it has tried to address the concerns of RBI in the design and structure of DMO. Simultaneously, it has started preparatory action on setting up DMO.
RBI Governor D Subbarao was against shifting DMO to finance ministry because of human resources and manpower issues. The finance ministry has assured that all 21 public debt offices of RBI will continue to function as they are doing today, but they will function at the behest of DMO.
RBI’s another concern was, when DMO was thought of, the government’s fiscal situation was under stress. To this the ministry’s argument is, the government is on the path of fiscal consolidation.
According to the finance ministry, with the setting up of the DMO, the dilemma of RBI between managing monetary policy and debt operations of the government will be eliminated. At present, both the government’s debt and fresh borrowings are managed by the central bank.
The finance ministry feels there is a conflict of interest and wants to separate RBI’s role as the decider of interest rate in the market and at the same time being the banker to the government.
Earlier this year, RBI Governor D Subbarao had said only the central bank had the requisite expertise to manage market volatility, and an independent debt agency, driven by narrow objectives, would not be able to do.
Finance minister Pranab Mukherjee in his Budget speech of 2011-12 had proposed to introduce the Public Debt Management Agency of India Bill in the next financial year.
