Union Government set up Public Debt Management Cell

The Union Finance Ministry 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 will 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.

Need

• The setting up of the PDMA is top priority of government for bringing financial sector reform.
• 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.

Background
Former Finance Minister Pranab Mukherjee was first announced the setting up of PDMA in Budget 2011-12. However, RBI was first to recognise the need for PDMA in its Annual Report 2000-01. It was also supported by the Financial Sector Legislative Reforms Commission (2013).

Month: Current Affairs - October, 2016