Govt to set up public debt office via executive order

PDMA will bring both India's external borrowings and domestic debt under one roof

The government said on Friday the proposed Public Debt Management Agency (PDMA), an independent office to manage the Centre’s debt, would be set up through an executive order.

In its mid-year economic analysis presented in Parliament, the finance ministry said it was in “consultations with the Reserve Bank of India” on setting up the PDMA.

Modelled on independent public debt offices in the US and the UK, India's debt management office will be charged with selling debt on behalf of the government after taking away such powers from 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 the 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”.

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.

Such an amendment was proposed for the winter session by minister of state for finance Jayant Sinha, but after the logjam in Parliament, many important legislations including the goods and service tax Bill seem difficult to pass.

The mid-year economic analysis, prepared by chief economic advisor Arvind Subramanian and his team, examined the trends in receipts and expenditure for the first two quarters of the year in relation to the Budget and provided a statement explaining deviations in meeting the government's fiscal obligations.

Among the other issues, it said the law ministry was vetting a proposal to provide an option to choose between employees provident fund (EPF) and national pension scheme (NPS) for around 50 million subscribers of Employees’ Provident Fund Organisation .

“The Cabinet note for amendment to the EPF & MP (Employees' Provident Funds and Miscellaneous Provisions) Act, 1952 has been sent to the Legislative Department of the Ministry of Law and Justice,” the report said. The government wants to amend the EPF & MP Act. It also aims to amend the definition of wages, which would include basic pay and all allowances paid to workers.

The definition change would increase PF contribution by workers and employers, but result in higher savings for employees.

The government said it has started taking necessary steps to implement direct transfer of fertiliser subsidy to farmers to reduce leakages. “We need to cut subsidy leakages, not subsidies themselves. We are committed to the process of rationalising subsidies based on this approach,” said the report.

The report noted any leakages in fertiliser subsidy could be due to diversion for urea other than the agriculture purpose. In this regard, the state governments are empowered to take action. “Necessary steps are being taken to implement DBT (direct benefit transfer) in fertiliser subsidy,” the report said.

In this year's Budget, the government allocated Rs 73,000 crore for fertiliser subsidy, of which Rs 38,000 crore was earmarked for urea.

The report also stated a three-pronged strategy focusing on 'yield, insurance and price’ can help boost domestic output and attain self-sufficiency. Pulse prices are on the rise due to fall in the domestic output by two million tonnes (mt) in 2014-15 crop year (July-June) following deficit rains. Due to stagnant domestic output at 17-18 mt, India has been importing 3-4 mt.

Owing to shortage, retail prices of pulses have been rising for the past few months up to Rs 200 a kg. Prices have now moderated to Rs 180 a kg after the government's intervention. “In the current scenario, a three-pronged strategy focusing on yield, insurance and price can augment domestic production of pulses, and India can attain self-sufficiency in pulses production,” the review stated.