Government of India Volume I: Analysis and Recommendations

CHAPTER 12
Public debt management
12.1. An independent public debt management agency
In India today, some functions of public debt management are divided between the Central
Government and the RBI. The RBI manages the market borrowing programme of Central
and State Governments. External debt is managed directly by the Central Government.
However, some functions that are crucial to managing public debt are not carried
out at present. For instance, no agency undertakes cash and investment management,
and information relating to contingent and other liabilities is not consolidated. Most importantly,
there is no comprehensive picture of the liabilities of the Central Government,
which impedes informed decision making regarding both domestic and foreign borrowing.
For roughly two decades, the solution that has been proposed in order to address this
problem has been a specialised agency that manages the liabilities of the Central Government
in a holistic manner. Public debt is increasingly obtained from private lenders,
including both domestic and foreign entities. Under these conditions, the management
of Government liabilities can grow in infinitely complex ways that could only be tackled
by a specialised agency.
A number of reports dealing with the issue of reform of public debt management,
notably the REPORT OF THE INTERNAL WORKING GROUP ON DEBT MANAGEMENT (2008), have
highlighted this gap in Indian financial sector regulation, and have argued for the creation
of an independent public debt management office. The Commission also believes that
there are other institutional benefits in avoiding conflicting roles for the RBI.
The Commission has considered the views of the RBI in this regard. The RBI believes
that “to achieve public policy objectives of ensuring growth, price stability and financial
stability, co-ordination between monetary policy, fiscal policy and sovereign debt management
is critical”. In the Commission’s formulation, the management of public debt
will not be carried out in isolation of an understanding between monetary policy and
fiscal policy. This is addressed through the governance arrangements that the Commission
recommends for the public debt management agency, where the RBI and the Central
Government have a presence and a voice in the agency’s deliberations (see Table 12.2).
Drawing on the consensus of expert committees of the last 20 years, the Commission
recommends fast-tracking the setting up of an independent public debt management
agency. In this regard, the RBI has put forth the view that “the expert committees
that have recommended an independent public debt management agency have made
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 111