Govt plans debt management agency via executive order

The government on Friday said an independent office to manage the Centre’s debt will be set up through an executive order till the time a proposed bill is passed by Parliament. In its Mid-Year Economic Analysis presented in Parliament, Finance Ministry said it is in “consultations with the Reserve Bank of India” on setting up a Public Debt Management Agency (PDMA).

Modelled on independent public debt offices in developed economies like the US and the UK, India’s separate debt management office will be charged with selling debt on behalf of the government after taking away such powers from the RBI.

The ministry has proposed to make PDMA an autonomous agency that will act as an investment banker to the government and will raise capital through bonds for the government. It 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 review said. “In the meantime, it is proposed to set up an executive order non-statutory PDMA.”

The Ministry said draft Cabinet Note for inter- ministerial consultation has been circulated. PDMA will resolve a conflict of interest the RBI now faces with its formal mandate to control inflation and separately having to manage the government’s fundraising. Finance Minister Arun Jaitley had proposed setting up a PDMA “which will bring both India’s external borrowings and domestic debt under one roof.”

There are precedences of government setting up non- statutory bodies before legislations are passed by Parliament. The Pension Fund Regulatory and Development Authority (PFRDA) was established by the Atal Bihari Vajpayee-government in 2003 through an executive order as a precursor to a statutory regulator.

PFRDA continued to be a non-statutory interim regulator for 10 years. A non-statutory PDMA would be an interim arrangement before an independent agency is set up for managing the government borrowing programme. At present, RBI is handling the government’s borrowing programme. The setting up of PDMA would require amendments to the RBI Act. The agency would be set up after the Cabinet approval, while a full-fledged PDMA would become operational only after amendment to the RBI Act.

Meanwhile, cautioning that the Indian economy is sending mixed signals, Chief Economic Advisor Arvind Subramanian on Friday said the future outlook is challenging as private investments remain weak and government expenditure is set to increase. However, stressing that the macro-economic situation is “robust and stable” and GDP growth forecast of 7-7.5 per cent is still the highest in the world, he said, “India is both a heaven of stability and outpost of opportunity”. “The economy is recovering but it’s hard to be very definitive about the strength and breadth of the recovery for two reasons -- economy is sending mixed signal and second there is some uncertainty how to interpret GDP data,” he said. 

About the signals, he said that while personal consumer loans are growing rapidly at 15 per cent, loans to industry are growing slowly. Also, while collection of indirect taxes is very high, direct taxes were not very buoyant.

Sectorally too, while coal, steel, aluminium are not showing much growth, electricity generation and car sales are rising. Subramanian was talking to reporters after the mid-year economic analysis, authored by him, was tabled in Parliament.

It also mentions that the data uncertainty is sometimes puzzling. “A lot is going on in the economy and different things are happening in different sectors, which makes interpreting it somewhat difficult,” he said, adding that overall tax revenues are buoyant, inflation is under control and external situation robust.

Subramanian said the “country can say with some amount of confidence that economy is well cushioned to absorb any volatility that might come about because of recent US Federal Reserve’s action (of hiking rates) yesterday or going forward. In that sense macro economy is well cushioned”. He said challenges remain on reviving private investment going forward as the economy cannot sustain consumption and public investment for long. “Outlook, going forward is little bit challenging. Private sector investment remains challenge because of legacy issues. Investment recovery will remain weak. Corporate sector is indebted and agriculture is not contributing as much,” he said.

While making a case for setting a more realistic disinvestment target for next year, Subramanian asserted that there would not be any expenditure cuts in the fourth quarter of this fiscal. “Fiscal deficit target of 3.9 per cent this year will be steadfastly met...3.5 per cent next year looks more challenging,” he said. Subramanian said the implementation of 7th Pay Commission recommendations and one rank one pension, besides decline in nominal GDP and not so strong private investment, will put pressure on the government’s fiscal position.

He said inflation has moderated significantly and it is now about 5 per cent. Underlying determinant like rural wages and MSP increases are also moderating and forex reserves have risen to about $352 billion which is above standard. 

“Rupee has been very stable. The focus on Rupee dollar rate conveys misleading impression about stability of rupee. If you measure it against basket of currencies it has actually been quite stable,” he said.