In India, traditionally, the RBI has been performing multiple roles — it’s the regulator for banks, a banker to the government and an authority to conduct monetary policy, ensure financial stability and also promote economic growth. The creation of a new organisation to manage the government’s debt will spare the RBI of at least one of its several tasks.

Officials said the new PSU would not have a free run or be bereft of competition. States may still have a choice to approach the RBI to manage their debt or raise funds from the market on their behalf. “The new PSU will have to sell itself to states and public sector enterprises. Its expertise should show in its ability to raise low-cost funds,” another official said.

In making the Budget announcement, the Finance Minister had said the government would set up a “middle office” by the end of the year as a first step towards establishing a full-fledged entity focusing exclusively on debt management. The “middle office,” as the name suggests, functions just like a research wing in an investment bank. The front office handles applications and receipts of money and the back office manages accounting and book-keeping.

The “middle office” was supposed to recommend to the government the necessary legislative and procedural changes required to carve out a debt management office outside the RBI. Since the RBI is handling this job, it was asked to depute some officials for the “middle office.” The central bank has, after more than 16 months, sent a communication sparing a few of its officials for the purpose.

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