Some promises should not be taken seriously, even if they are stated in Budget speeches of finance ministers. Indeed, over the years, Budget promises have acquired the stamp of what the FM wished the Centre could do, not what it can do. So, look at para 76 of a document called Implementation of Budget, 2008-09, and read the finance ministrys crisp announcement stating that action has been completed on setting up a separate debt management office (DMO) in the ministry. Those familiar with the development would be able to point out that nothing substantial has happened on the project. The proposal is meant to free RBI eventually from having to manage debt operations on behalf of the government. A separate DMO would have relieved the central bank of a major burden. At present, RBI is acting as a regulator, monetary policymaker and also as an investment banker to the Union government. Public debt management, currently, is principally the job of RBIs public debt office. Even so, it results in a conflict of interest. The case for separating RBI from debt management is logically so cast-iron that it was something of a surprise that no official thought had been given to the problem until the Kelkar committee on the finance ministry submitted its report. And that was a few years ago.
All countries with a sophisticated financial sector operate through a separate DMO. Perhaps the slow pace on creating a DMO for India is an unwitting acknowledgement of where we stand in the global pecking order of financial markets. The British DMO, which is an autonomous entity under the Chancellor of the Exchequer in UK, was set up in 1998. The prime responsibility of the DMO is management of the British governments cash. Apart from raising debt for the government, the British DMO also raises funds for local bodies and urban development authorities in that country. It is expected to raise debt for the Union government, both short and long-term, which also includes treasury bills. The idea here is quite similar. The central bank and government wanted to set up a DMO to let RBI focus clearly on its job and set of responsibilities as banking regulator. It was a laudable aim. So, when can we see a separate DMO Maybe the finance ministry can make a non-Budget promise this time.