By suggesting that the proposed Debt Management Office of the government of India will unburden RBI (FE, March 8), Ila Patnaik actually argues for more burden for RBI. Our government has a burgeoning public debt, which shows little inclination to come down, given the government’s current fiscal policy thrust of more and more deficit financing. The government will have to frequently come to the market for more loans, combining fresh loans as well as escalating interest payment. This will result in the interest rate structure of the whole system going awry, as RBI’s interest rate policy as part of the monetary policy will definitely be under strain, for government’s need for large debt and RBI’s need for balanced interest rates will work at cross-purposes. The author should refer to a comment by C Rangarajan that if the public debt management function is taken away from RBI “prematurely”, it would not be wise. As James Tobin said: “There is no neat way to distinguish monetary policy from debt management, [both] the Federal Reserve and the Treasury … are engaged in debt management in the broadest sense, and both have powers to influence the whole spectrum of debt.”
Samir Ghosh, General Secretary, All India Reserve Bank Employees Association (FE)
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