Government of India Volume I: Analysis and Recommendations

PUBLIC DEBT MANAGEMENT
Table of Recommendations 12.6 Scope of the public debt management agency
There are limitations on the public debt management agency’s functions, particularly in expanding it to States, as
the management of State debt is a State subject under the Constitution of India. Accordingly, the draft Code must
provide for the following:
1. While the public debt management agency acts as a Central Government agency obliged to manage only
Central Government debt, it must undertake those functions related to State Government debt, which have
implications for the Central Government’s debt portfolio.
2. This involves maintaining a comprehensive database of State Government debt and co-ordinating the Central
Government’s borrowing calendar with the market borrowings of State Governments.
3. However, the public debt management agency may provide the option to the States of managing their public
debt, subject to the State Governments entering into agreements with the agency to this effect.
4. Additionally, the public debt management agency should be empowered to offer technical assistance to
State Governments to set up their own debt management offices.
fused with financial regulation. The functions of consumer protection and micro-prudential
regulation, for the Government securities market, do not rest with the public debt
management agency. However, as a specialised body that understands the market for
Government securities, the public debt management agency should be an important
voice on legal and institutional reforms that are necessary to achieve its objectives.
Going beyond this, public debt management agency must run a continuous effort
of measuring market efficiency and liquidity, and asking how these can be improved, so
as to cater to the goal of achieving low-cost financing for the Central Government in the
long run. It must undertake initiatives to continually broaden access and participation in
the market for bonds issued by the Indian Government, in terms of both investors and
financial intermediaries, since this would yield improved market efficiency and liquidity.
12.4. Scope
Imposing the services of the public debt management agency on State Governments is
not possible since the management of State debt is a State subject under the Constitution.
The public debt management agency must be a Central Government agency obligated
to manage only Central Government debt. It must, however, undertake functions
related to State Government debt, which have implications for the Central Government’s
debt portfolio. This involves maintaining a comprehensive database of State Government
debt and co-ordinating the Central Government’s borrowing calendar with State
Governments’ market borrowings. However, at a later stage, the public debt management
agency may provide the option to the States of managing their public debt (see
Table 12.6), subject to the State Governments entering into agreements with the agency
to this effect. This will not oblige State Governments to deal with the public debt management
agency, as State Governments will also be able to enter into similar agreements
with any entity offering such services for managing their public debt. Additionally, the
Commission recommends that the public debt management agency should be empowered
to offer technical assistance to State Governments to set up their own debt management
offices.
118 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION