These issues have come to prominence in recent weeks, where the financial markets have been concerned about large borrowing requirements of the government. Given that the RBI handles all three functions (banking regulation, investment banking, monetary policy), these concerns immediately spill over into concerns about what banking regulation might do next or what monetary policy might do next, in order to assist the investment banking function of the RBI. This adds to the atmosphere of uncertainty that prevails in the economy today.

The establishment of a DMO has been advocated by the RBI, and by a number of expert committees, from 1999 onwards. This culminated in a budget announcement by the UPA government to this effect. A ministry of finance working group, with which this writer was associated, has worked out the mechanics of how the DMO should be set up (tinyurl.com/indiandmo). The task before the government now is to swing into action.

The writer is senior fellow, National Institute of Public Finance and Policy, Delhi

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