As the recent committee report from the ministry of finance points out, a venerable list of government committees has talked about cleaning up institutional mechanisms of investment banking for the government. The present structures, which were defined by the RBI Act of 1934, reflect the knowledge of institutional design prevalent in 1934. This fails to do justice to either the task of monetary policy or of investment banking for the government. This problem has been emphasised by the Narasimham Committee (1991), a RBI working group (1997), RBI annual reports of 2000-01 and 2005-06, the Virmani Report on Middle Office for Public Debt Management (2001), the Kelkar Report on the Ministry of Finance (2004), the Mistry Report (2007) and the Rajan Report (2008). Despite this long list of heavyweights, who have weighed in on debt management, so far nothing has been done about it. This is a depressing illustration of the power of bureaucratic status quo in India when compared with the obvious needs of the economy. The UPA government is to be commended for having taken an important first step: fleshing out the idea as a 127-page committee report, which contains a meticulous draft legislation. It is to be commended for putting the draft legislation into the public domain, something which is done all too rarely in India. It is to be commended for the rich interconnections—paragraph by paragraph—between the arguments of the report and the clauses of the draft legislation. This is perhaps the first committee report in India where meticulously done draft legislation is fully backed by economic rationale, and tightly interconnected with the rationale.
The establishment of the National Treasury Management Agency (NTMA) is a critical component of institutional arrangements of India as a mature market economy. It has far-reaching implications for fiscal, financial and monetary institution-building. Now, the next steps consist of (a) passing the legislation, and (b) creating the NTMA and staffing it with top quality people. As was done with Sebi, IRDA and PFRDA, the path to implementation lies in setting up the NTMA as an executive agency under MoF, pending the legislation. The job of turning this draft legislation into an Act of Parliament will now be on the first 100 days’ agenda of the next government.