Centre puts RBI staff issue ahead of PDMA question

The finance ministry for the time being has put on the backburner a proposal to set up an independent office to manage the central government's debt as it is yet to decide on the fate of the staff working in the RBI's debt management department. "We will take a call on setting up of PDMA at a more appropriate time after deciding on what to do with the staff of RBI's front and back office. We will move Cabinet only after that," a senior finance ministry official said.

The Public Debt Management Agency (PDMA) was proposed to be set up as an autonomous agency that will act as an investment banker to the government and will raise capital through bonds for the government. At present, RBI is handling the government's borrowing programme. The setting up of PDMA requires amendments to the RBI Act.

RBI through the Internal Debt Management Department (IDMD) manages the public debt of the central and state governments. The department also regulates and supervises the Primary Dealers System and has the responsibility for development of G-secs Market. Currently, RBI fully handles issuance (front-office) and infrastructure (back-office) of G-secs. The middle office, which is currently with the Finance Ministry, handles formulation of a long-term debt management strategy, annual debt issuance and periodic calendars of borrowing, forecasting cash and borrowing requirements. It also lays down a comprehensive risk management framework. "Ideally speaking, there has to be a debt management office separate from the regulator i.e. RBI. But whether we should go for it in the present form and shape is a matter for debate," the official said. RBI so far has been managing debt at an arm's length distance and conflict of interest is being handled by them for so many years, he added.

Finance Minister Arun Jaitley in Budget 2015-16 had proposed setting up a PDMA "which will bring both India's external borrowings and domestic debt under one roof".

However, later, he dropped the proposal from the Finance Bill 2015. The minister, however, had said the government, in consultation with the Reserve Bank, will prepare a road map to pursue a separate debt management agency later in line with the global practice.

In its Mid-Year Economic Analysis, the ministry said a PDMA to manage the Centre's debt will be set up through an executive order till the time a proposed bill is passed by Parliament. Modelled on independent public debt offices in developed economies like the US and the UK, India's separate debt management office will be entrusted with selling debt on behalf of the government after taking away such powers from RBI.

PDMA will be tasked with setting the borrowing calendar as well as deciding on maturities of securities to be issued on behalf of the government. "Detailed road map has been prepared for establishing PDMA," the mid-year review said. "In the meantime, it is proposed to set up an executive order non-statutory PDMA."

PDMA will resolve the conflict of interest RBI now faces with its formal mandate to control inflation and separately having to manage the government's fund-raising. The proposed PDMA will bring both India's external borrowings and domestic debt under one roof.