Financial Regulation and Independent Debt Management Office

Abstract

In the pre-reform period till 1980s, debt management remained passive and was not market oriented. Ever since the onset of financial sector reforms, the proposal for separation of debt from monetary management, and setting up of an independent Debt Management Office (DMO) gained prominence. As part of new financial regulatory architecture, an independent DMO is one among the seven new institutions proposed by the Financial Sector Legislative Reforms Commission in India. It has been viewed that as both debt and monetary management became market oriented, the potential conflict between the two has surfaced. When the RBI is entrusted with the responsibility of both debt and monetary management, its market interventions and even its interest rate policy can be clouded by debt management objectives. The fiscal–monetary nexus in that sense cannot be underestimated. Separation of debt management can help in resolving this conflict.