Mumbai: The move to set up a separate Public Debt Management Agency (PDMA) to manage market government borrowings and public debt and also a Monetary Policy Committee for inflation targeting may reduce the powers of the central bank, says analysts.
The proposals are a way of curtailing the powers of the Reserve Bank, apart from increasing the debt burden on the nation, a leading tax and banking expert said. Noting that RBI has been doing a commendable job in handling public debt management, Ashvin Parekh, a leading financial services expert who retired from EY and is currently the managing partner of Ashvin Parekh Advisory Services, said the move is unfair on the RBI.
"The move to set up a separate PDMA is a bit drastic for reducing the powers of RBI as it comes with many pre-conditions. After all, RBI has been doing a fairly good job in the past on this front, especially during the East Asian currency crisis and also during the recent flight of capital following the Fed's tapering talk," Parekh told PTI.
While presenting the Budget, Finance Minister Arun Jaitley said following the FSLRC (Financial Sector Legislative Reforms Commission head by BN Srikrishna) report, the government proposed to set up a PDMA. The FSLRC report in March 2013 had also recommended that Sebi, Irda, Pfrda and FMC be merged into a single entity into a unified financial agency.
On this, Jaitley said, "We have also received a large number of suggestions regarding the Indian Financial Code, which are currently being reviewed by the Srikrishna panel. I hope, sooner rather than later, to introduce the IFC in Parliament for consideration." Parekh also pointed out the move will only increase the debt burden on the public maturity of government debt, which is long term and that one of the key focus of the budget is to increase debt-driven investment.
Another analyst who does not want to be named also echoed similar views saying the recommendations of the FSLRC that may impact on the powers of RBI or having a single financial sector regulator by merging all the four regulators now, are not worth implementing, "Why to change when everything is going on well?" he quipped when asked about the need for a separate debt management agency.
"If we keep raising more and more debt, we may be falling into a trap of the many Western European countries. It will lead to burden on future government as debts are paid later and we will be leaving our future generations into debt trap. Even China is having second thoughts on debt-driven investment spree it has undertaken in the past," he said.
