to move forward with a public debt management agency of india bill. 39. there is need to reconsider the content and pace of this process in view of the revised circumstances post - crisis. the case for shifting debt management function out of the central bank is made on several arguments such as resolving conflict of interest, reducing the cost of debt, facilitating debt consolidation and increasing transparency. these advantages are overstated. 40. the most potent of these arguments is the one relating to conflict of interest. the other arguments pertain to mechanics of debt management which can be said to be model neutral. let me, therefore focus on the conflict of interest issue. 41. the primary conflict which is generally associated with a central bank managing sovereign debt pertains to the one between its inherent responsibility as the monetary authority, and its obligations as a debt manager. in particular, it is argued that the central bank will be biased towards a low interest regime in order to reduce the costs of sovereign debt even if it compromises its anti - inflation stance. a similar conflict may also distort the open market operations of the central bank. 42. the above arguments, though valid in some countries, fail to recognize that in countries such as india, given the large size of the government borrowing program, sovereign debt management is much more than merely an exercise in resource raising. the size and dynamics of government borrowing program has a much wider influence on interest rate movements, systemic liquidity and even credit growth through the crowding out of private sector credit demand. management of public debt, therefore, has necessarily to be bis central bankers ’ speeches seen as part of broader macroeconomic management framework involving various tradeoffs. once this is recognised, the centrality of central banks in this regard becomes quite evident. only central banks have the requisite market pulse and instruments to aid in making contextual judgements which an independent debt agency, driven by narrow objectives, will not be able to do. 43. also, it is not that these conflicts would disappear merely by shifting debt management out of the central bank. in fact resolving those conflicts could become much more complicated leading to inferior outcomes. this is because even after the separation, the central bank would continue to be expected to manage the market volatility and market expectations arising out of government borrowing. 44. admittedly, a few years back, the challenges of managing the above conflicts in the then prevailing context seemed to weigh in favour of separation of debt management from the central bank. the con

india was passed in 1934 and the reserve bank of india came into being a year later in 1935. the bank was set up on the basis of the recommendations of the hilton young commission. earlier in 1913, john maynard keynes who served as an officer of british administration in india, had proposed a “ state bank ” to be set up in india, which was to engage in both central banking and commercial banking functions. keynes proposed that the bank be run by a central board consisting of the governor, the deputy governor, a representative of government and three or more non - voting assessors. bis central bankers ’ speeches 5. even as the reserve bank ’ s statutory mandate is wide compared to that of other central banks, what really sets us apart is the key role the reserve bank has had in driving india ’ s development agenda. several national level programmes such as those for the flow of credit to the agriculture sector and for small and medium industries were initially designed and implemented by the reserve bank. the apex national institutions for agriculture credit ( nabard ), industrial finance ( idbi ) are offshoots of what were once departments within the reserve bank. the reserve bank has been at the forefront in nurturing institutions and developing financial markets in india – the money market, the foreign exchange market and the government securities market. efforts in recent years have focussed on enhancing the depth, integrity, transparency and efficiency of these markets. 6. the reserve bank pioneered the lead bank scheme in 1969 whereby a designated bank in each district coordinates the flow of credit from all institutions in the district in support of the district credit plan. the reserve bank also issues directions and monitors the priority sector lending scheme, whereby all commercial banks are required to set apart a prescribed share of their total advances to priority sector. in recent times, the reserve bank has been leading the effort towards financial inclusion and financial literacy with the aim of eventually providing all households in the country meaningful access to the formal financial sector. autonomy and accountability 7. my second introductory comment is about autonomy and accountability. neither the rbi act nor any rules lay down a formal accountability mechanism. in the absence of a specific formulation, the fallback is on the general principle underlying a democracy – which is to render accountability to the parliament through the finance minister. the reserve bank assists the finance minister in answering parliament questions that pertain to its domain. besides, the standing committee on finance of parliament summons the governor for testimony on specific issues including legislations under consideration. 8. as regards autonomy,