Public Debt Management


  • Long-pending proposal to set up an independent agency to manage Central government borrowings.
  • Setting up of Public Debt Management Agency (PDMA) will require amendments to the RBI Act.
  • The need for an independent debt manager for the Centre is becoming more underlined as its borrowings cross over Rs 6 lakh crore and it is trying to lower its fiscal deficit to less than 4 per cent this fiscal.
  • The rationale for PDMA is simple – it would permit the RBI to focus more fully on its responsibility of setting the monetary policy as well as do away with the conflict of its twin roles as the manager of government debt as well as its banker.
  • The model is followed internationally in most developed economies including the United Kingdom and Sweden.
Setting up of Public Debt Management Cell:
Government has set up a Public Debt Management Cell (PDMC) with the objective of deepening bond markets in the country. PDMC will streamline government borrowings and better cash management for deepening bond markets.
Key Facts
  • PDMC is an interim arrangement and will be upgraded to a statutory Public Debt Management Agency (PDMA).
  • Thus, it is a requisite preparatory work for PDMA.
  • It will allow separation of debt management functions from RBI to PDMA in a gradual and seamless manner, without causing market disruption.
  • The Middle Office of the Budget Division in the Union Finance Ministry will be subsumed into PDMC with immediate effect.
  • The Joint Secretary (Budget), Department of Economic Affairs of the Finance Ministry will be the overall in-charge of the PDMC.
  • PDMC will have only advisory functions in order to avoid any conflict with the statutory functions of RBI.
Functions of PDMC
  • Plan government borrowings, including market borrowings and other borrowings, like Sovereign Gold Bond (SGB) issuance.
  • Manage government’s liabilities, improve cash forecasting, monitor cash balances, foster a liquid and efficient market for government securities.
  • Advise government on matters related to capital market operations, investment, administration of interest rates on small savings etc.
  • Develop an Integrated Debt Database System (IDMS) as a centralised data base for all liabilities of government, on a near real time basis.
  • IDMC will be an integral part of PDMC.
Why needed?
  • With establishing PDMA, Government seeks to divest the RBI of its dual and often conflicting roles as the banker and manager of the Central Government’s borrowing.
  • It will also facilitate in better planning and management of domestic and foreign market borrowings of Central Governemnt.
  • It will help in strengthen bond market and help to promote investment.
  • It will be in pursuance global practice of shifting public debt management from central bank to a debt management office.
Recently there was controversy regarding the proposal to establish the Public Debt Management Agency (PDMA) by the government. Many economists argue that it is prudent to leave debt management to the RBI alone. Analyse the issue. (200 Words)
Why PDMA needed ?
  1. Fragmented jurisdiction in public debt management: Before the creation of PDMA, the central Bank or RBI used to manage the market borrowing programmes of Central and State Governments. On the other hand, external debt was managed directly by the Central Government. Establishing a debt management office would consolidate all debt management functions in a single agency.
  2. PDMA can be the catalyst for wider institutional reform, including building a government securities market, and bring in transparency about public debt.
  3. It is considered as an internationally accepted best practice that debt management should be disaggregated from monetary policy, and taken out of the realm of the central bank
Arguments for PDMA
  1. If debt management is with RBI, there will be conflict of interest. RBI has to reduce the cost of govt. debt (lower interest rate) and also manage inflation levels (higher interest rates)
  2. Reports of Narsimhan committee, Vijay Kelkar and Percy Mistry committees, there is an emphasis on the formation of a separate agency
Arguments against PDMA/ Challenges
  1. Previously RBI too had handled the debt management in a transparent and efficient manner. The present system of debt management is working good, as it has helped in maintaining debt at a manageable level always.
  2. RBI is already prohibited from interfering in the primary market according to the FRBM act, and the govt. bonds are solely auction driven. So, a separate agency is not needed
  3. Other countries like UK, had also reverted to assigning the debt management activity to national banks, after forming similar separate agencies
  4. Mutual coordination can become difficult
  5. RBI also manages states’ debts and the PDMA is not very clear on what happens to that function. PDMA under central government have implication for federal structure of India.
  6. Even though if a separate public debt management agency is to be created, it must be done gradually and systematic fashion
This agency should be independent. Proposed agency is under the supervision of central government.



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