Public Debt Management Agency

Public Debt Management Agency has been proposed to be set up by the Finance Minister in his budget 2015-16 speech. This separation of debt management from monetary policy is being seen as a watershed reform in the financial circles. Debt management role was performed by RBI. It is the Central Bank which laid regulations about the minimum number of bonds a bank needs to hold to fulfil its SLR requirements. RBI also managed the timing and structure of new debt issued ( e.g. the bond auctions).

Also, as the prime monetary authority, RBI also manages the fate of old debt in open market operations. The bond market in India has been facing mis-pricing issues as over the last 40 years bond interest rates have been considerably lower. This is the reason for its under-performance and not able to attract new savings. The move by government in this light is a laudable effort. Such recommendations have been extensively done previously by many financial committees and task-forces set up to review the monetary and economic situation like Narasimhan Committee (1991), RBI  annual reports (2001,2006); Kelkar Report (2004), Mistry (2007) and Raghuram Rajan (2008). This is also deemed important as Indian economy needs about $1 trillion or more to finance its infrastructure needs which can be met by efficient debt funding. This will need to attract new savings which in turn appropriate reform in structure and policy.

The Agency will bring India’s domestic debt and external borrowings under one roof.  It will aid in development of bond market in India as the latter is essential in promoting investment climate in India. The PDMA will work with an aim to structure the debt requirement in the country and monitor the utilisation and cost of debt.

The agency will collect and publish information about public debt and also purchase and re-issue various bonds. It will thus be responsible to make payment of interest and repayment to the bond holders. Thus, the agency will also be able to do risk analysis of debt and fully control the debt structure, cost, use and repayment. Finally, after a robust structuring is done, it will be able to go to the next level of free trading in bonds like the equity markets.

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