Government of India Volume I: Analysis and Recommendations

PUBLIC DEBT MANAGEMENT
Therefore, the public debt management agency should also carry out cash management,
with a particular focus on its two main components – cash forecasting and cash
balancing. Cash forecasting involves participating actively in the forecasting of expenditure
and revenue, including long-term annual or half-yearly forecasts and the short-term
monthly, fortnightly, weekly or even daily internal forecasts. It also means integrating
forecasts of receipts and payments with other information on cash flows, notably those
generated by financing decisions - bond issuance and servicing and by the cash manager’s
own transactions.
Cash balancing involves co-ordinating the matching of day-to-day expenses and revenues.
This includes maintaining a regular channel of communication with the Central
Government’s banker (i.e., RBI) to estimate end-of-day balances. It also requires implementing
a remit from the Ministry of Finance regarding managing idle balances. In certain
situations, this might also involve management of permanent or structural cash surpluses.
The public debt management agency should also maintain a database (or have access
to the database created by the Ministry of Finance for this purpose) of the actual
cash balances and the liquidity requirements of various departments and ministries of
the Central Government, including forecasts of spending and revenue patterns that gets
updated frequently.
12.3.3. Contingent liabilities
Contingent liabilities may be either explicit or implicit, and may be issued by either the
Central or State Governments. There are close interconnections between contingent liabilities
and debt issuance. The invoking of guarantees can have a substantial impact on
the risk assessment of the public debt structure of the Central Government. The Commission
is of the view that the public debt management agency must manage and execute
implicit and explicit contingent liabilities. It must evaluate the potential risk of these
contingent liabilities and advise the Central Government on charging appropriate fees.
In addition, the Government should be required to seek the public debt management
agency’s advice before issuing any fresh guarantees since this has implications for the
overall stability of the public debt portfolio.
The realisation of contingent liabilities is counter-cyclical and adds to the financial
burden of the Central Government especially at a time when it is in a crisis situation. Given
this, the public debt management agency should advise the Central Government on making
provisions for contingent credit lines with bilateral and multi-lateral agreements and
establish similar credit lines with international agencies.
The management of contingent liabilities is a specialised function that involves undertaking
the risk assessment of clients. Therefore, the public debt management agency
should be allowed to contract out in part or in entirety the management of contingent
liabilities to outside agencies if it so chooses.
12.3.4. Research and information
The public debt management agency must adopt a holistic approach that encompasses
the entire liability structure of the Central Government. This includes not just marketable
debt but also contractual liabilities from public accounts (such as small savings, provident
fund receipts) and any other internal liabilities. While these liabilities are part of
public accounts and not a part of consolidated funds, they influence the cost of raising
debt and provide indirect support to the Governments.
It is also useful for the public debt management agency to maintain a comprehensive
database of State Government debt, including information on Consolidated Funds
116 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION