Public Debt Management Office

Introduction

• Public Debt Management Agency (PDMA) is a specialized autonomous independent body that manages both the internal and external liabilities of the Indian Government in a holistic manner and advises on such matters in return for a fee. 
• The agency was proposed to be established in India through the Finance Bill, 2015. 
• But PDMA was not established due to the differences of opinion on the matter and the relevant clauses were dropped from the Finance Bill, 2015.

Arguments in Favour of PDMA

• Fragmented jurisdiction in public debt management: RBI manages the market borrowing programs of Central and State Governments. But the external debt was managed directly by the Central Government. A centralized debt management agency would consolidate all debt management functions in a unified body which will make holistic management of the internal and external liabilities. 
• Most advanced economies have dedicated debt management agencies and thus it is an internationally accepted best practice. Hence, debt management should be disaggregated from monetary policy and taken out of the realm of the central bank. 
• It was recommended by various committees like the Percy Mistry committee, Raghurajan committee and FSLRC.
• There is a conflict of interest between setting the short-term interest rates using various tools of monetary policy and selling government bonds. If the RBI tries to be an effective debt manager, it will sell bonds at very high prices, which will lower the interest rate. This leads to an inflationary bias in monetary policy.

Arguments Against PDMA

• The scope of conflict of interest has significantly reduced as FRBM 2003 has prohibited RBI from involving in the primary auctions of the government securities (as it would lead to printing money). 
• The RBI has been handling multiple tasks very efficiently. It has ensured transparency in managing public debt in a cost-effective manner (low cost of raising funds for the government). 
• The function of debt management lies at the crossroad of fiscal and monetary policies, so it requires some coordinated approach.
• Some countries like Denmark and Iceland have reverted the debt management function back to the central bank.