The debate regarding hiving off the debt management activities of the Reserve Bank occurred when RBI showed its disagreement in setting up a DMO under the Union government to manage the sovereign debt.
RBI was is opposition of the fact that all the vital knowledge regarding the management of the market volatility is given to the central bank only. The set up of an independent Debt Management Office was proposed to separate the role of RBI, which currently decides the interest rates in the market, and being the banker to the government.
Commenting on the issue RBI Governor Duvvuri Subbarao said at a meeting of the Central Bank Governance Group in Basel said that currently all the essential market pulse and instrument to aid in making contextual judgements. Thus, despite being an independent debt agency RBI would be unable to maintain the track.
Contrary to Subbarao, Rangarajan, a former RBI Governor commented that central should to take up its jobs and responsibility if it is adequately prepared to undertake that function. Rangarajan declared it earlier that government would require the help of RBI to raise the borrowing rate that below the market rate.
However, contradicting the statement, he recently said that the as per the Fiscal Responsibility and Budget Management (FRBM) Act, the RBI is not supposed to be in the primary market. However, currently, central bank is managing both the government's debt and fresh borrowings.