Finance Ministry begins separating public debt management from RBI

Finance Ministry of India has decided to set up Public Debt Management Cell (PDMC) in Budget division, Department of Economic Affairs (DEA) as an interim arrangement, it said in a statement on Wednesday. 

"This interim arrangement will allow separation of debt management functions of 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," it said. 

The idea of the Government managing public debt has been around for quite some time with ex-Governor Raghuram Rajan, too, endorsing it in 2015. He had said, "...I don't see any reason why RBI should continue doing the PDMA (Public Debt Management Agency) functions. I am happy to let it go to the government.”

However, there were concerns regarding taking PDMA function from the RBI as housing the body within the Government might lead to conflict of interest as it owns large stakes in Life Insurance Corporation (LIC) and public sector banks which are realing with bad loans problems. 

Finance Ministry, in its October 4, 2016 statement, said, "The PDMC will have only advisory functions to avoid any conflict with the statutory functions of RBI."