Time for independent debt management office: Niti Aayog

NITI Aayog Vice Chairman Rajiv Kumar. (PTI File Photo)

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, though it has not yet been implemented.

"...It is important for this particular office to 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 here.

At present, the government debt, including market borrowing, is managed by the Reserve Bank of India (RBI).

The government has to decide how to segregate different functions of the RBI, Kumar said adding that government been very courageous to give the central bank the statutory authority for the inflation targeting.

"Therefore, who then looks after growth, employment, debt and other legal things etc in the country? I think those are the things that need to be discussed," he argued.

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.

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 noted.

Kumar suggested that this could be done either by capital infusion in banks or further merger (of banks).

He said there was no reason for India to follow prudential norms much more than what has been prescribed by Basel 3 norms for capital adequacy in banks.

Kumar also made a case for development of corporate debt market to enable companies to raise long-term funds at competitive rates.

He also regretted that efforts being made to develop corporate debt market in past have not yielded any results.

"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 foreign direct investment (FDI) in banking space.

The Niti Aayog vice chairman also noted that the RBI and the finance ministry have been working together in tough times without any single causality.

Kumar further said that Indian economy will be growing at over 7 per cent in the coming years.

Noting that India's credit to gross domestic product (GDP) ratio is still lower compared to most economies, he said, "Indian economy is heavily under-leveraged; therefore, we have potential for growth."

Kumar said that the era of phone banking has gone and banks are now required to do their due diligence much more than past.

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Time for independent debt management office: Niti Aayog

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