• The idea of separating debt management from RBI was proposed earlier in Financial Bill 2015 (and also by RBI in its annual report 2000-01) as Public Debt Management Agency (PDMA), which required amendments to the RBI Act.
• PDMA manages the internal and external liabilities of the Central Government in a holistic manner and advises on such matters in return for a fee.
• As an interim arrangement, Government set up a Public Debt Management Cell (PDMC) for debt management under RBI itself but as an independent agency with advisory powers.
Need to Separate Functions of RBI from PDMA:
• To bring together all government borrowings under one roof.
• To encourage wider institutional reform that will strengthen bond market, and bring in transparency about public debt that makes an efficient system.
• To tap funds from a larger pool of resources globally accepted practice.
Issues with PDMA:
• Fears of market volatility caused by the shifting of responsibility to a new agency.
• Conflicts of interest between government as owner of banks and issuer of debt.
• Doubts over Capability of PDMA vis a vis RBI
Mains Paper 3: Economy
Prelims level: Public Debt Management Agency
Mains level: Issues with PDMA