NITI Aayog Vice Chairman Rajiv Kumar on Friday made a strong case for setting up of an independent debt management office outside the purview of Reserve Bank of India, saying it was “an idea whose time has come”.
The idea of a Public Debt Management Agency (PDMA) was proposed by Finance Minister Arun Jaitley in his February 2015 Budget speech, but it was put on a back burner following objections from the Reserve Bank of India.
“…It is important for this particular office be separate, because then you can pay much more attention (on public debt management). That will help the government in bring down cost of its debt,” Kumar said at an event organised by NITI Aayog. The Reserve Bank of India currently manages the government debt, including market borrowing, and has been reluctant to part with this function. The government has to decide how to segregate different functions of the RBI, he said. The idea behind setting up of PDMA was to resolve issues relating to conflict of interest as the RBI decides on the key interest rates as well as undertakes buying and selling of government bonds.
“One vital factor in promoting investment in India, including in the infrastructure sector, is the deepening of the Indian Bond market, which we have to bring at the same level as our world class equity market. I intend to begin this process this year by setting up a PDMA which will bring both India’s external borrowings and domestic debt under one roof,” Jaitley had said in Budget 2015-16.
Referring to the banking sector, Kumar said that India needs global-size banks to take advantage of economies of scale. “India’s largest bank is still the 60th largest bank in the world and that does not give you clout in the global financial markets… and the advantage of scale is just not there…I think we do need few larger banks that can compete globally and be able attract investors fund,” he said. He said there was no reason for India to follow prudential norms much more than what has been prescribed by Basel-III norms for capital adequacy in banks. There could also be a need to revisit the composition of equity in the banking sector, indicating possibility of higher foreign direct investment (FDI).
“What should be the composition of our equity? Have we reached the limit of foreign equity participation in our banking sector, or is there more room available?…I think that’s the other issue for both banking and debt market,” Kumar said on the issue of FDI in banking space.