Parliamentary panel to talk divesting RBI of debt management role

• 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.

About:

• 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

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Mains Paper 3: Economy

Prelims level: Public Debt Management Agency

Mains level: Issues with PDMA

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