Independent debt management office: rationale, scope and structure

Abstract

Ever since the onset of financial sector reforms in India in early nineties, the proposal for separation of debt management from monetary management and setting up of an independent Debt Management Office (DMO) gained prominence. As both debt and monetary management became market oriented, the potential conflict between the two has surfaced. Since RBI is a major investor in government securities, and its market interventions through open market operations in government securities and liquidity management operations through CRR or LAF can be clouded by debt management objectives. The fiscal-monetary nexus in that sense cannot be underestimated. As the role of RBI is restricted to management of market loans, debt management should be viewed in a holistic manner while structuring the new DMO. The interests of all stakeholders, namely, the central government, state governments and the Reserve Bank also need to be kept in view. The Institutional and organisational structure of DMO across the globe can serve as vital leads in crafting the structure of India DMO.