On April 30th thursday,finance minister Mr. Arun Jaitley, withdrew the clauses from the finance bill regarding setting up of PDMA or Public Debt Management Agency and amendments to RBI Act, that would have taken away Mint Road’s powers to regulate government securities.According to the minister, in consultation with the RBI the government would prepare a road map to pursue a separate debt management agency in lines with the global practice.
- Neither public debt is managed by the central bank nor is regulation of G-Sec, currency and derivatives with RBI.
- Continuation of RBI as Debt manager of the Government restricts the liquidity and fragments the functioning of bond market.
- Mr Arun Jaitley, in his first full year budget, had proposed to set up PDMA and shift the regulation of government bonds from RBI to Securities And Exchange Board or SEBI.
- RBI governor Mr Raghuram Rajan had not criticised this, but Deputy Governor SS Mundra had called for examination of all related issues.
- As per Finance Minister Mr Arun Jaitley, the Government is committed to unifying the financial market by making G-Sec part of this market as well as creating a proper bond currency derivative market.
- Mr Arun Jaitley also said that the existing structure also leads to conflict of interest because RBI has to perform dual roles of controlling inflation and keeping the cost of government borrowing low .
- On tuesday April 28th, junior finance minister Mr Jayant Sinha said RBI would remain the regulator of bond market, but thursday’s move by the government to withdraw the clauses had put end to the debate.
- Independent debt management office is also the best international practice and the examples are UK and USA.