Government has started the process of shifting debt management from RBI to an independent agency by setting by a Public Debt Management Cell which will be made a statutory body, PDMA, in two years.
Presently the government debt, including market borrowings, is managed by the Reserve Bank.
The aim of setting up the Public Debt Management Agency (PDMA) is to resolve issues relating to conflict of interest as RBI decides on the key interest rates as well as undertakes buying and selling of government bonds.
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The Middle Office of the Budget Division in the Finance Ministry will be subsumed into PDMC "with immediate effect", a circular said.
The interim arrangement, the ministry circular said, "will allow separation of debt management functions from RBI to PDMA in a gradual and seamless manner, without causing market disruptions".
PDMC, to be housed at RBI's Delhi office, is an interim arrangement and will be upgraded to a statutory PDMA in "about two years".
The circular further said that PDMC will have only advisory functions to "avoid any conflict with the statutory functions of RBI".
The Joint Secretary (Budget) in Department of Economic Affairs would be the overall in-charge of the PDMC.
The transition process from PDMC to PDMA would be implemented by a joint implementation committee (JIC).
JIC would operate under the supervision of the Monitoring Group on Cash and Debt Management with DEA Secretary and RBI Deputy Governor as co-chairpersons. The PDMC would be staffed by 15 debt managers from Budget Division, RBI, current Middle Office and other government units.
PDMC has been tasked to plan government borrowings, including market borrowings and other borrowings, like Sovereign Gold Bond issuance. Other functions of PDMC are to manage government's liabilities, monitor cash balances, improve cash forecasting and foster a liquid and efficient market for government securities.
It will also advise government on matters related to investment, capital market operations, administration of interest rates on small savings, among others. Further, it will undertake requisite preparatory work for PDMA.
PDMC has also been asked to develop an Integrated Debt Database System (IDMS) as a centralised data base for all liabilities of government, on a near real time basis. IDMC would be an integral part of PDMC.
In his February 2015 Budget speech, Finance Minister Arun Jaitly had proposed to set up a PDMA to deepen Indian Bond market.
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