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A step closer to PDMA: Finance ministry sets up cell to manage govt borrowings

The PDMC, which will have only advisory functions to avoid conflict with statutory functions of the RBI.

By: ENS Economic Bureau | New Delhi |
October 6, 2016 1:19:25 am
 Debt, PDMA, Reserve Bank of India, RBI, Monetary Policy Committee, Public Debt Management Cell, PDMC, Public Debt Management Agency, Integrated Debt Database System, business news The PDMC, which will have only advisory functions to avoid conflict with statutory functions of the RBI. (PTI Photo)

In its effort to move towards an independent Public Debt Management Agency (PDMA) in about “two years”, the Ministry of Finance has set up a Public Debt Management Cell (PDMC) to help streamline government borrowings and cash management for separation of debt management functions from the Reserve Bank of India.

“This interim arrangement will allow separation of debt management functions from RBI to PDMA in a gradual and seamless manner, without causing market disruptions. The PDMC shall be upgraded to a statutory PDMA, in about 2 years,” a finance ministry statement said.

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The PDMC, which will have only advisory functions to avoid conflict with statutory functions of the RBI, will plan government borrowings, including market borrowings and domestic borrowing activities like issuance of Sovereign Gold Bond. The PDMC will also manage government’s liabilities, monitor cash balances, improve cash forecasting, foster a liquid and efficient market for government securities along with advising government on matters related to investment, capital market operations, administration of interest rates on small savings, among others.

PDMC will develop an Integrated Debt Database System (IDMS) as a centralised database for all liabilities of government, on a near real-time basis and undertake requisite preparatory work for PDMA. PDMC will have 15 experienced debt managers from Budget Division, RBI, Middle Office and other government units, the ministry said.

The Middle Office of the Budget Division in the finance ministry has been subsumed into PDMC “with immediate effect,” the ministry said. Joint secretary (Budget), Department of Economic Affairs will be the overall in-charge of the PDMC, which will be located at the RBI’s Delhi office.

A joint implementation committee chaired by Joint secretary (Budget) will oversee the transition process of PDMC to PDMA. The committee would operate under the supervision of the Monitoring Group on Cash and Debt Management with secretary, Department of Economic Affairs and RBI Deputy Governor as co-chairpersons.

The government had, in the Finance Bill, 2015, proposed setting up a public debt management agency. In his February 2015 Budget speech, finance minister Arun Jaitley had said, “I intend to begin this process this year by setting up a Public Debt Management Agency which will bring both India’s external borrowings and domestic debt under one roof.”

Although, the government withdrew the proposal at the last minute, the revised draft of the Indian Financial Code (IFC) released in July 2015 had recommended setting up the agency.

The government had initially proposed simultaneous formation of Monetary Policy Committee and PDMA to separate conflicting roles of RBI as the one which sets interest rate in an effort to control inflation and manages government’s debt.

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