the objective of the reserve bank as a public debt manager may conflict with the prevailing monetary policy stance and the market participants ; the central bank may not be increasing interest rates to keep borrowing costs low and thereby compromising on inflation management ; ii. the central bank, being also a debt manager, could take government debt on its balance sheet to ensure successful government borrowing ; and iii. the imperatives of the government borrowing program may influence the decision of the reserve bank, as regulator of banks, to reduce the slr requirements. 29. in my view, the institutional arrangements for debt management must take into view the country specific context and requirements. to set the context for this debate, we can examine the conflict of interest argument in indian context. even as the government ’ s borrowings had gone up both in absolute and proportional terms, reserve bank has raised policy rates several times during the past five years ; clearly indicating its commitment to price stability. inspite of a six - fold increase in the size of the net market borrowing of the central and state governments during the decade 2000 – 10, the average weighted cost of borrowing declined by over 450 bps compared to the previous decade. in 2009 – 10, during the global financial crisis, reserve bank carried out government borrowing of about ` 4 trillion without disrupting the debt market or elbowing out private sector ’ s credit requirement. inspite of rising interest rate scenario, the reserve bank was able to complete the government ’ s borrowing program in a non - disruptive fashion at a reasonable cost. 30. the frbm act, 2003 which precluded the reserve bank from participating in the primary auction of the government bonds has resolved the conflict of interest with the monetary policy. monetary signalling in india is now done by the repo rate ( policy rate ) under the liquidity adjustment facility ( laf ) and not the bond yields. 31. as regards the slr issue, it needs to be appreciated that the slr has been used by the reserve bank as an instrument of prudential regulation. this has ensured that at any given point of time, all the banks have a specific percentage of their liabilities in the form of riskfree, liquid instruments. in fact, such requirement for banks to hold a certain percentage of their assets in cash and cash like instruments is one of the key corrective instruments being discussed internationally, and formed integral part of liquidity risk management under basel iii capital framework. in any case, pre - emptive mandated investments

the investor base, strengthening market infrastructure, etc. have further strengthened the g - sec market. as a result, we have a yield curve that spans for thirty years, world - class trading and settlement infrastructure and keen foreign investor interest. on the sustainability front, the debt ratios are reasonable. debt to gdp ratio has declined in the past decade and stands at 39 per cent of gdp for the central government ( 49 per cent of gdp for the total central government liabilities ) in 2013 – 14 ( re ). interest payments to revenue receipts ratio of the central government at 37 per cent in 2013 – 14 ( re ) was significantly lower than 51 per cent in 2002 – 03. in line with the renewed move towards fiscal consolidation from 2012 – 13, gfd declined to 4. 6 per cent of gdp in 2013 – 14 ( re ) from 4. 8 per cent in 2012 – 13. it is budgeted to decline further to 4. 1 per cent in 2014 – 15. 4. in this backdrop, i will share my thoughts on the debt management operations of the reserve bank of india with special emphasis on management of the government of india debt. bis central bankers ’ speeches role of reserve bank and the government in public debt management : legal and institutional framework 5. it is a sound practice to have appropriate legal framework and institutional structure / organizational arrangements in place for public debt and the entities given powers to borrow must be entrusted with clear responsibility and transparency. the constitution of india gives the executive branch of government the powers to borrow upon the security of the consolidated fund of india. reserve bank as an agent of the government ( both union and the states ) implements the borrowing program. the reserve bank draws the necessary statutory powers for debt management from section 21 of the reserve bank of india act, 1934. while the management of union government ’ s public debt is an obligation for the reserve bank, the reserve bank undertakes the management of the public debts of the various state governments by agreement. the procedural aspects in debt management operations are governed by the government securities act, 2006 and rules framed under the act. 6. external debt ( bilateral and multilateral loans ) is managed by the department of economic affairs in the ministry of finance ( mof ). all debt management functions for marketable internal debt are undertaken in the reserve bank. these functions comprise formulation of a calendar for primary issuance, deciding the desired maturity profile of the debt, size and timing of issuance, designing the instruments and methods of raising resources