The Centre may drop a plan to set up a ‘shell’ public debt management agency (PDMA) via an executive order, paying heed to the law ministry’s opinion that the new set-up would require amendments to the Reserve Bank of India Act, reports Prasanta Sahu in New Delhi. Although a full-fledged PDMA, which would require taking out parts or all of the public debt management functions from the RBI’s mandate, is very much on the government’s agenda, a view has emerged that this needs legislative backing, sources familiar with the issue told FE.
The RBI is said to be against the transfer of back-office functions (trading platform, database) even though it agrees on vesting the proposed PDMA with advisory (middle office) and the job of issuance of government securities (front office function).
The central bank’s fear is that divesting it of the debt management functions could impinge on monetary policy transmission.
According to sources, the government is in the process of strengthening the existing middle office (advisory job) for public debt management in the finance ministry till the RBI Act is amended to set up the PDMA. They hinted that changing the law for this purpose could take a couple of years.
Even as a consensus with the RBI on the structure of the PDMA, proposed in the Budget in February, remained elusive, the finance ministry floated a draft paper on this in September for inter-ministry consultations. The suggestions included equipping the PDMA with the requisite skills in dummy trading in securities and new systems for primary issuance. The PDMA, the ministry feels, could hire staff from the RBI as well as from the private sector.
Another view has also emerged about the utility of bringing out an executive order to set up a shell PDMA when there is already a middle office. “We can give more powers to the middle office for discharging certain functions, which it is not performing now,” an official said. The middle office could be tasked with consolidating government debt data that is now spread between the RBI and several government agencies.
While the RBI handles government securities, the aid, accounts and audits division advises on external debt while the postal department advises on small savings. All these would be put together in the middle office to advise and give a better picture of full government debt and contingent liabilities, which is not the case now.
The existing middle office located at the finance ministry now is manned by just two officers from the RBI and it is heavily reliant on the central bank. Its manpower and capacity would be strengthened further to function independently.
