The government’s debt management office (DMO) is unlikely to be a public sector enterprise as proposed by the working group that submitted a report early this year to the Finance Minister on the creation of a National Treasury Management Authority (NTMA). It will, instead, be an authority reporting to the finance ministry, and a not-for-profit establishment supported by budgetary allocations.

The DMO was conceived to be an autonomous body to manage the government’s debt, estimated at Rs 20.14 lakh crore for the year-ending March 31, 2009. At present, this function is managed by India’s central banker, the Reserve Bank of India (RBI). It, however, results in a conflict of interest where the central bank sets the short-term interest rate as the monetary authority and also sells government bonds as the country’s debt manager.

Finance Minister Pranab Mukherjee is yet to approve the DMO structure as proposed by his ministry. The proposal is in stark contrast to the recommendations of the expert working group that had said the DMO should be a separate entity outside the aegis of the finance ministry. It had recommended that the NTMA, with a PSU character, be staffed with financial experts who are paid salaries at par with the private sector. “A DMO within the finance ministry would be unable to do this given the civil service structure. A DMO also needs specialised IT systems that support front office and back office activities, and might require specialised internal audit, accounting and legal services, particularly as it expands. It would be a challenge to provide these specialist services and skills within the constraints of a departmental budget with competing priorities,” the working group had noted.

... contd.