...........Various expert committees have all along been insisting on fiscal consolidation as a essential precondition to such an arrangement. While there is merit in what they have been saying, the RBI should stop managing the government’s debt if it wants to keep its credibility intact. Once the government is forced to pay the real market price for debt, it will start acting responsibly in managing the fiscal deficit.
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There is sense in the argument “ The only way to make the government pay the real price for its borrowing is setting up a separate debt management office.” But at this juncture if the central bank stop supporting GOI’s finance (read debt) management, there will be chaos in the Indian financial market. FSLRC does not seem to have gone deep into the country-specific issues or the evolution of the responsibilities of RBI. ‘Cut and paste’ approach to institution-building in financial sector will be disastrous.
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