New Delhi: The Union government is preparing to set up a middle office by end-June to partially manage its borrowing programme, two finance ministry officials with knowledge of the development said.
The government’s aim is to “legislate later, but get going (now)”, said one of the officials, who did not want to named. The office would have a staff of up to 30 people.
Presently, the Reserve Bank of India (RBI) manages the monetary policy as well as the government’s borrowing programme, which could give rise to a potential conflict of interest.
Setting up a middle office for managing the borrowing programme is a step towards the creation of an independent debt management office (DMO) that would divest RBI of the responsibility and enhance India’s institutional architecture.
In his 2006-07 budget speech, then finance minister P. Chidambaram had proposed establishing an autonomous DMO. An independent middle office would be a transitory step to reach the goal, he had said.
The middle office will analyse the debt market and take a call on the duration and the instruments needed to raise money to meet the government’s expenditure, the two finance ministry officials quoted earlier said.
In the next fiscal, the middle office is expected to decide on the timeline and other details of the Union government’s borrowing programme, the second official said.
At present, the central bank and the Union government jointly work out a timeline for the borrowing programme, and RBI acts as the government’s investment banker for the borrowing.
The middle office would initially function under the finance ministry’s overall supervision. At the end of two years, it would be in a position to transition to a full-fledged DMO and legislation to create it could be ready, the two officials said.
The proposal to set up a middle office received a guarded response from D.K. Srivastava, director of the Madras School of Economics, who was also a member of the 12th Finance Commission.
“At the moment, it may, at best, lead to marginal efficiency improvements,” Srivastava said. “I don’t see a qualitative change.”
Srivastava’s cautious note was on account of scepticism about the government’s desire to provide a DMO with autonomy and follow through with its commitments to bring down deficits and debt as a proportion of gross domestic product.
Parliament does not seem to have significant oversight on the government’s stated commitments on deficits and borrowing, Srivastava said.
In the absence of an exogenous body that can force the government to stick to its commitments, tangible autonomy for a DMO appeared unlikely, he added.
Suggestions to set up an independent DMO to manage the government’s debt programme have long been recommended by different committees and accepted by the central bank.
However, last year, then RBI deputy governor Rakesh Mohan had suggested that it might be premature to move to an autonomous DMO.
Terming it as a personal view while taking part in the proceedings of the committee on financial sector assessment, Mohan said the time was not ripe for a complete separation of debt management from RBI, though a middle office could help debt management as a whole.