Asserting that Finance Minister Arun Jaitley is on the same page as him on creating a public debt management agency (PDMA), RBI Governor Raghuram Rajan on Tuesday said it would be unwise to move things away from the Reserve Bank without discussions and disrupt a smooth-functioning market for “hypothetical gains”.
“What is important, and this is something where there is complete agreement with the Finance Minister and me, is that what is functioning well doesn’t need to be disrupted for some hypothetical gains,” Rajan told reporters after the second bi-monthly policy announcement.
“There is a broad agenda of moving other things away from the RBI and I think we have agreed that would not be wise without deeper dialogue,” he added.
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The comments come weeks after the government decided to delete the provisions in the Finance Bill regarding the creation of an independent Public Debt Management Agency and also shifting the regulation of the secondary market for government securities away from the RBI to capital markets watchdog SEBI.
After dropping the provisions, Jaitley had said that the government would discuss the issues in detail with RBI and then move with the changes.
According to some experts, there is a conflict of interest with the RBI acting as both the investment banker managing the nation’s liabilities as well as handling the monetary policy.
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Rajan on Tuesday said there is a “reasonable case” for creation of the PDMA, saying this will not create a “huge disruption” and added that a part of the function is already being carried out from the Finance Ministry.
However, on the regulation of the secondary government bond market, Rajan was not so explicit, and sought more talks.
He said the RBI regulates only the over-the-counter short-term money market instruments like government bonds, options and the currency and there is a “stronger link” between those and the monetary policy.
“It is important to consider these things, how those things are regulated, who regulates them and where they (would) lie,” Rajan said, pointing out that SEBI already regulates exchange traded bonds and there is a “miss-apprehension that it is somehow not being regulated by SEBI.”