The market borrowing programmes were completed smoothly in an environment of falling yields due to comfortable liquidity, low inflation and low credit offtake.In the case of states, the borrowing programme could be managed satisfactorily despite difficulties due to increased requirements.
States had to pay different rates on their respective borrowings based on size and timing of issue, economic strength and prospects of the state, fiscal position, efforts to control indebtedness and past record while servicing debt. Even as the debate on separation of the debt and monetary management functions is intensifying, changes in the legal framework are being envisaged to improve the functional autonomy of the Reserve Bank of India (RBI).
The Fiscal Responsibility and Budget Management Bill 2000 seeks to set an operational rule for fiscal policy to strengthen the redefinition of roles and responsibility between the government and the RBI in the management of public debt. It is felt that separation of the two functions would depend on fulfilment of three pre-conditions, i.e development of financial markets, reasonable control over fiscal deficit and necessary legislative changes. The RBI has already proposed to amend the Reserve Bank of India Act (1934) in order to vest the management of public debt to the central government or another independent body. Meanwhile, the RBI would continue its effort to elongate the maturity profile of public debt, minimise cost, enhance fungibility and liquidity.
At the same time, greater transparency is being imparted to debt operations in an attempt to align expectations relating to the future sustainability of public debt management with market participants .
Important landmarks included the reintroduction of floating rate bonds after seven years, introduction of a scheme of non-competitive bidding up to five per cent of the notified amount for retail and mid-segment investors, announcement of a calendar for the core component of Government of India dated-securities for the first half of the current fiscal, operationalisation of the first phase of the Negotiated Dealing System and establishment of Clearing Corporation of India Ltd.