House panel to talk divesting RBI of debt management role

House panel to talk divesting RBI of debt management role

Recently the Parliamentary Standing Committee on Finance has discussed the separation of debt management function from the Reserve Bank of India (RBI).

The idea of separation of debt management from RBI was earlier proposed as Public Debt Management Agency (PDMA) in the Finance Bill, 2015 (and also by RBI in its annual report 2000-01). It is to be known that for this amendment in the RBI Act is required.

The PDMA will holistically manage the internal and external liabilities of the Central Government and provide advice on such matters in consideration of a fee.

As an interim arrangement, the government has set up Public Debt Management Cell (PDMC) for debt management as an independent agency under the RBI but with advisory powers.

Need to segregate the debt management functions of RBI:

  • Bringing all government borrowings under a single institution.
  • To encourage comprehensive institutional reform. This will strengthen the bond market and ensure transparency in public debt, thereby creating an efficient system.
  • To tap the wealth from a vast pool of resources.
  • Globally accepted system.

Issues related to PDMA:

  • Anticipating market volatility as a result of the transfer of responsibility to a new agency.
  • Conflict of interest between the government as the owner of the banks and the issuer of the loan.
  • Doubts on the efficacy of PDMA relative to RBI.

Source – The Hindu

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