Govt to shift RBI's debt management role to a new agency in two years

The Reserve Bank of India (RBI), which forfeited its monetary policy role to a government-led committee, may soon find its public debt management role shifted to an independent agency appointed by the government, say reports.

Reports quoting finance ministry sources said the new agency which will manage public debt on behalf of the government will be in place in the next two years.

The move, according to the ministry, is aimed at resolving a potential conflict of interest of the Reserve Bank of India (RBI) managing inflation levels at the same time selling or buying bonds on behalf of the government.

The ministry will initially set up a cell within the ministry to advise the RBI on setting the debt size and the borrowing calendar for the government's market borrowings as well as managing its liabilities.

The cell will be upgraded to a statutory public debt management agency in about two years.

The government funds the majority of its fiscal deficit through bond sales by the RBI, which also sets interest rates on the securities.

The ministry said the change would facilitate separation of debt management functions from the central bank in "a gradual and seamless manner, without causing market disruptions".

Meanwhile, market regulator Securities and Exchange Board of India (Sebi) had early this year, increased foreign investment limit in government securities to Rs1,48,000 crore, with plans to raise it further to Rs1,52,000 crore by January next year.

It also decided to enhance limit for investment by long- term FPIs (sovereign wealth funds, insurance funds, pension funds and foreign central banks) in government securities in two tranches from 3 October and 2 January 2017.

For long-term FPIs, limit has been enhanced to Rs62,000 crore from 2 January this year. It would be further increased to Rs68,000 crore from 2 January 2017.

Besides, limit for investment by all FPIs in state development loans (SDL) have been increased to Rs17,500 crore. Further, it would be enhanced to Rs21,000 crore from 2 January 2017.