RBI employee unions have urged MPs and state finance ministers to stop a proposed Public Debt Management Agency (PDMA), saying the move to withdraw the RBI’s powers to regulate government securities will cost the government heavily.
"Holding of government securities by the central bank in a developing economy is always advantageous. The argument for separation of public debt management from the RBI is hardly relevant in our context," the unions wrote earlier this week, ahead of the change of guard at the central bank with Governor Raghuram Rajan due to hand over the reins to Urjit Patel.
"In today’s world of financial insecurity, the much chased financial stability can only come from a well co-ordinated monetary policy exercise, exchange rate control and public debt management which precisely the RBI is doing most efficiently and for which it is recognised the world over," said the letter written by the All India Reserve Bank Employees Association, All India Reserve Bank Workers Federation, All India Reserve Bank Officers Association and the Reserve Bank of India Officers Association.
"The government will have to incur huge costs if such enormous amount of securities is transferred to NSDL (National Securities Depository) or Sebi (Securities and Exchange Board of India), as the RBI do not charge anything for its depository function, while NSDL or any other agency will, as these are profit-oriented companies," it added.
Finance Minister Arun Jaitley had, in the last year’s budget, proposed setting up a separate body under the finance ministry as an autonomous agency "to bring both the country’s external borrowings and domestic debt under one roof".
However, faced with opposition and in a big backtrack on the issue by the government in May, Jaitley withdrew from the Finance Bill the clauses pertaining to setting up of a PDMA and the amendments to the RBI Act.
The unions said that when foreign investors want to invest large-scale in the country, they have to purchase huge amount of rupee bonds to buy domestic assets. Consequently, the rupee appreciates and makes exports costly, while to offset this the RBI has to intervene and remove excess foreign currency from the markets, thereby maintaining the exchange value of the rupee.
"The RBI sells government securities which it holds in its reserves and abates excess rupee supply from the market. This exercise warrants RBI having huge stock of government securities," the letter said.
Under such arrangement, the RBI can simultaneously manage public debt and maintain the exchange rate, it added.
Moreover, the proposed PDMA will only look after the central government’s borrowing but was totally silent about the borrowing programmes of the states.
"When the RBI is divested of management of central government debt, it becomes impossible for it do that for the states, since issuance and servicing of state securities by the RBI is based on the tranche, periodicity, maturity patterns, interest rates of the central government securities," the unions said.
The United Forum of Reserve Bank Officers Employees had struck work for a day last year to protest the government’s moves to curtail the RBI’s powers, saying the PDMA "will also henceforth function as depository of government securities (G-Sec), thus taking away from RBI some vital operations having relevance to money market as well".