CAG calls for legal framework for public debt management

Concerned over management of public debt in the country, the Comptroller and Auditor General (CAG) of India has advised Finance Ministry to consider putting in place a legal framework clearly specifying the objectives of Central government borrowing and the public debt management strategy.

Raising the need to have a legal framework, the CAG in its report, tabled in Parliament on Tuesday, said, “The existing legal framework for the management of public debt is contained in the Constitution of India and various primary and secondary legislations like RBI Act-1934, Public Debt Act-1944, FRBM Act-2003, FRBM Rules-2004, Government Securities Act-2006, etc, but these existing legal frameworks don’t define the term public debt.”

“A legal framework, consisting of both the primary and the secondary legislation, may include the definition of public debt, debt management objectives, borrowing purposes and requirement of debt management strategy,” the CAG said in a report on Public Debt Management.

It noted that there has been no evaluation of outcomes though, the Fiscal Responsibility and Budget Management Act, 2003 mandates submission of three annual reports annually that include information on debt management activities.

The CAG report also noted the lack of progress on the setting up of a separate Public Debt Management Authority (PDMA) till date.

“A number of expert committees set up in India over the past two decades had recommended the establishment of a separate PDMA. Though a PDMA was not set up, a separate Middle Office (MO) was set established in September in 2008,” the report said.

The responsibilities of MO, among other things included formulation of comprehensive risk management framework, formulation of a long term management strategy and developing as well as maintaining a centralised database on government liabilities, the report said, adding that these activities were not being performed by the MO, though some of these functions were discharged by other agencies.

The CAG, in its report, also suggested for creating a debt information system, debt servicing and debt reporting. “Debt management activities should be supported by an accurate and comprehensive information system with proper safeguards capable of capturing, monitoring, analysing and reporting debt information. The system would help in supporting recording, reporting and analytical functions,” the CAG said.

According to CAG report, the total outstanding public debt of the country as on March 31, 2015 was Rs 51,04,675 crore of which Rs 47,38, 291 crore (92.82 per cent) was internal debt and Rs 3,66,384 crore (7.18 per cent) was external debt. 

“In 2014-15, 77 per cent of the long term internal borrowings and 73 per cent of the external borrowings were utilized for debt servicing, which in turn meant lower percentage of debt taken was available for meeting developmental expenditure to promote growth which is one of the reasons for contracting debt,” the report said.