Debt Management Bill likely soon

Finance ministry wants RBI?s role in the job scrapped to avoid conflict of interest

The finance ministry is planning to table a Bill in the Budget session to take over the management of government debt from the Reserve Bank of India (RBI).

In a step towards public debt management reforms, the Bill will shift the task of managing government debt from RBI to an office in the ministry, to avoid conflict of interest in the central bank’s role. The Public Debt Management Agency of India Bill proposes to set up an independent Debt Management Office (DMO) in the ministry.

A status report on government debt released on Tuesday said, “It was proposed to bring the legislation in the ensuing Budget session for 2012-13.”

Finance Minister Pranab Mukherjee, in his Budget speech of 2011-12, had proposed introducing the Bill in this financial year. The DMO will manage sovereign debt.

At present, the debt, including market borrowings, is managed by RBI. The finance ministry has said this led to conflict of interest as RBI is the monetary authority, playing a crucial role in determination of interest rates in the market, as well as the banker to the government.

The report also said the Centre’s liabilities were estimated at 44.2 per cent of gross domestic product (GDP) at the end of this financial year. However, these are Budget Estimates and the government’s market borrowings have increased by over Rs 90,000 crore or over 20 per cent of the Budget Estimates of Rs 4.17 lakh crore.

In the Medium-Term Fiscal Policy Statement, which was presented along with the Budget 2011-12, it was estimated that the Central government’s debt and liabilities would be 45.3 per cent of GDP at the end of March 2011.

It was further estimated at 44.2 per cent of GDP at the end of 2011-12. In the medium term, the government intended to reduce the level of public debt and liabilities to 41.5 per cent of GDP by the end of 2013-14.

“It would be the endeavour of the government to gradually reduce the debt level over the medium term, even below the level recommended by the 13th Finance Commission,” the report said.

Initially, the government had budgeted Rs 4.17 lakh crore of borrowing in 2011-12. In September, the government said it would borrow Rs 52,800 crore more to meet its expenditure requirements in the second half of the year. Later it announced additional borrowing of Rs 40,000 crore.

Initially, RBI was against shifting the DMO to the finance ministry because of human resources and manpower issues. The ministry assured all 21 public debt offices of RBI would continue to function as they were doing on Tuesday, but would function at the behest of DMO.