Comments
The issue of divesting of public debt management function from the Reserve Bank has taken an interesting turn with RBI staff sending an SOS to Union Human Resources Minister Prakash Javadekar.
The United Forum of Reserve Bank Officers and Employees sought the good offices of Javadekar in taking up the matter with the Finance Ministry and settling it in RBI’s favour.
Javadekar’s letterFor good measure, it has produced a letter Javadekar himself wrote in his capacity as an MP and spokesperson of BJP to then Finance Minister Pranab Mukherjee.
In the letter dated September 15, 2010, Javadekar recalled ‘a Finance Ministry proposal to set up a separate debt management office.’
He had said in the letter that divesting the RBI of the debt management function ‘may not be prudent at a time when the government is running a high fiscal deficit.’
“The proposed functions...are being managed by RBI in relation to internal debt....and it has achieved considerable expertise in market operations,” he wrote in the letter. “The logic of distinguishing monetary policy from debt management...and hence the need for a separate debt management agency...stand no ground,” he added.
“Leaving the ever increasing public borrowings of the government...to the whims of the market....would adversely affect the management of monetary policy regulation.”
If the management of public borrowings is taken up by the Ministry of Finance, there are two more practical problems arising out of it, Javadekar had said.
Firstly, as per market logic, potential investors would start for vying only bonds floated by those states which are in good fiscal health.
Those which are not, could likely be ignored.
They would be forced to offer higher interest rates to attract investors, eventually impacting their already depleted finances.
Secondly, if debt management were to be left to the mercy of the new agency, there was no knowing how it would ensure timely payments to investors and provide a guarantee against the risk of default.
After all, it could not act as a banker to state governments or issue overdrafts.
“I hope you would consider these inherent conflicts and take appropriate steps in this regard,” Javadekar had conveyed to the then Finance Minister.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.