India lacks legal framework for public debt management: CAG Report

India should institute a legal framework clearly specifying the objectives of government borrowing and the public debt management strategy, official auditor CAG recommended on Tuesday.

“A legal framework, consisting of both the primary and the secondary legislation, may include the definition of public debt, debt management objectives, borrowing purposes and requirement of debt management strategy,” said the Comptroller and Auditor General (CAG) in a report on Public Debt Management tabled in parliament.

The report says: “The legal framework for debt management did not define the term public debt. The legal framework did not indicate clearly debt management objectives and borrowing purposes; and also did not provide for formulation of a debt management strategy.”

CAG said there has been no evaluation of outcomes despite the Fiscal Responsibility and Budget Management Act, 2003, mandating submission of three reports annually that include information on debt management activities.

The report also noted the lack of progress in setting up a separate Public Debt Management Authority (PDMA).

“A number of expert committees set up in India over the past two decades had recommended the establishment of a separate PDMA. Though a PDMA was not set up, a separate Middle Office was set established in September 2008,” it said.

In a big backtrack on the issue by the government last May, Finance Minister Arun Jaitley withdrew from the Finance Bill the clauses pertaining to setting up of a PDMA and the amendments to the RBI Act that would have taken away the Reserve Bank’s powers to regulate government securities.

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 proposed 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”.

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