Should RBI continue as Debt Manager?

Should RBI continue as Debt Manager?

The new Modi government wants to set up a separate independent debt management office. The topic has remained a matter of controversial debate between the RBI and government. Ever since the financial sector reforms were started in India in early nineties, the debate of having a separate debt management body from monetary management started. Monetary management and debt management sectors are market oriented, and therefore potential conflict between two units is natural. In such a scenario what do you think should RBI continue as Debt Manager?

Yes

• RBI is the only body with the necessary tools, staff and expertise to conduct macro-assessments about the debt management. The independent agency will have a narrow mindset and will lack expertise.

• RBI possesses the power to harmonize the debt management of state and union governments. The set up of independent office indicates ignoring the state government that will ultimately have an adverse impact on money supply in the economy.

• The main objective of setting up an independent debt office is to stop conflict of interest. However, it will not be achievable even after it as government is the major shareholder in PSUs banks.

• There is no basis or justified reasons to change the system as till this time RBI has done its work well. There is no space for “Trial n Error” in the set system.

No

• There is conflict of interest between monetary management segment and debt management, and therefore new independent debt office should be opened.

• The 13th Finance Commission headed by Vijay Kelkar came up with the recommendation of setting up of a separate National debt Management agency.

• There are many advanced economies where the debt management and monitoring policy work is done by two different agencies. The examples are New Zealand and Sweden.

• There are even some nations which have set up independent debt management offices outside their finance ministry and things are doing pretty well. The examples are Denmark and Germany.

Conclusion

Leaving aside the questions of autonomy, it is not the right time to experiment with new independent set up for debt management. It is especially true when there is no problem or questions over the expertise of RBI in controlling the segment. When the matter is about the financial stability, it is better not to destabilize the existing framework and that too following the examples of other economies. The government can take over the segment, but is should be done after careful consideration. Remember haste makes waste.