A debt management strategy review is in the offing as the Reserve Bank of India (RBI) seeks to make government borrowings efficient over medium to long term with the right risk balance.

The object of the medium-term debt management strategy review is to manage public debt of the government at low cost over medium to long-term, with prudent levels of risk and a stable debt structure. It also aims to develop a liquid and well-functioning domestic debt market.

The RBI also proposes to draft a debt management strategy for few states with respect to finances and risk management, the central bank said in its annual report.

In FY22, Indian states borrowed Rs 7.02 lakh crore from the debt market. This accounted for 38.4% of the total debt borrowing of Rs 18.3 lakh crore for FY22. The government expects its market borrowing to be at Rs 14.31 lakh crore in FY23. 

Around one-third of general government debt pertains to sub-national governments. However, a document outlining the strategy of debt management for efficient and effective management at sub-national government is lacking.

“A pilot MTDS for a few states is proposed to be drafted reflecting the state governments’ plan for financing their activities, while taking due account of constraints and potential risks,” the RBI said in the annual report.

The RBI also aims to conduct capacity building programmes for sensitising the state governments about prudent practices in cash and debt management, it said.