States may have flexibility on joining DMO

Move to end opposition by states that could delay the setting up of debt office.

In the face of resistance from a number of states,the government is thinking that the proposed debt management office DMO should,in its initial years,focus on managing the Central governments borrowing programme. States would be given a leeway to either continue using the services of the RBI to manage their borrowing or to join the DMO.

It will not be mandatory for states to join the DMO,which can concentrate on the Centres borrowing. States can join whenever they gain confidence in the functioning of the debt office, a finance ministry official said.

The proposal has come up as many states governments such as Kerala had opposed the idea of an independent debt office on concerns of losing their autonomy,and wanted to continue using the services of the central bank for managing their borrowings. The finance ministry is worried that opposition by state governments could delay its plans of setting up the DMO in the next two years.

The finance ministry is currently in the midst of setting up a middle office which would act as a transition to a full-fledged DMO.

The Centre is keen to set up a DMO on which it has found support from central banks as well,as it would be divested from its responsibilities of managing the mammoth government borrowing programme and can instead concentrate on regulatory issues. The idea has gained currency in recent years with the huge Central government borrowing programme. The Centre borrowed 4.51 lakh crore last fiscal and is set to borrow Rs 4.47 lakh crore in 2010-11.

It was formally announced in Budget 2007-08. World over,debt management is distinct from monetary management8230; I propose to set up an autonomous DMO and,in the first phase,a Middle Office will be set up to facilitate the transition to a full-fledged DMO, the then finance minister,P Chidambaram,had said.

Minister of state for finance Namo Narain Meena had recently informed the Parliament that the finance ministry is in talks with state governments on the issue.

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Some state governments are in favour of the proposed DMO managing debt of states,while some others had certain reservations. The views of state governments will become relevant inputs in finalising the structure of DMO, Meena said in a written reply in Rajya Sabha.