India plans to take away RBI's debt management role in two years

The finance ministry will set up a cell to advise the central bank on government's market borrowings and liabilities

India plans to transfer the central bank's responsibilities for managing public debt, on behalf of the government, to a new independent agency in the next two years, the finance ministry said.

The shake-up aims to resolve a potential conflict of interest the Reserve Bank of India (RBI) faces as the body responsible for meeting the inflation target as well as for selling and buying government bonds.

India funds the majority of its fiscal deficit from bond sales by the RBI which involves setting interest rates on the securities that are auctioned, and can potentially lead to conflicts of interests.

As part of the change, the ministry will set up a cell that will advise the central bank in finalising the government's market borrowings as well as managing its liabilities, the finance ministry said in a statement.

In about two years, the cell would be upgraded to a statutory public debt management agency.

The ministry said the change would facilitate separation of debt management functions from the central bank in "a gradual and seamless manner, without causing market disruptions."