Just 24 hours after Urjit Patel resigned as governor of the Reserve Bank of India (RBI), the government has named a new man to the post – former department of economic affairs (DEA) secretary, Shaktikanta Das.
First the positives: Das is a veteran of the finance ministry and has seen many budgets and steered many confrontations between government and regulators. Also as secretary DEA he has grappled with issues in the equity and debt markets.
Secondly, as an IAS officer, he instantly earns the respect of the bureaucracy. While the current secretaries in the finance ministry may have been confrontational with the former governor, they will approach Das, a senior from the civil service, with deference. An-old-boys’-club camaraderie may help bridge difference of opinion that may have seemed unbridgeable under the previous governor.
Third, Das is India’s Sherpa to the G20 and would by now have many friends in the international circuit. In these days of trade wars and globalised volatility, governor Das may be better placed to phone-a-friend in similarly placed emerging economies. More importantly, Das comes without the baggage that has led to the current stand-off between the RBI and the government. Many a board member of the RBI has privately confessed that disagreements between RBI and government officials may have sometimes been exacerbated by ego problems. Here’s a chance for both sides to start with a clean slate.
And finally Das is described by acquaintances in civil service and RBI as one of the most amiable persons. This is in contrast to the former governor who earned for his post the moniker “reserved bank of India”.
The new governor may come with the handicap that he is probably the first in many decades not to have a formal doctoral degree in economics or finance. But past RBI governors aver this is no big disadvantage. The governor handles so many issues from payments to technology to personal finance to banking capital to rural development to markets to foreign exchange to monetary policy, that no governor would be a master of all. He necessarily depends on the highly competent staff of the RBI and often makes only common sense decisions between rival options. In fact, said a past RBI inmate, under Patel and to some extent Rajan, the RBI staff sometimes felt they were not being called upon to contribute as much as they could or wanted to. Governor Das, by plumbing the RBI cadres for more help may restore self esteem to the organisation.
That said there is no wishing away the challenges. Governor Das is walking into a landmine. The RBI top brass and past seniors are loath to part with their capital, and justly so. The government may well want that honey pot given that Goods and Services Tax (GST) revenues have been far lower than expected. The RBI top brass genuinely believes weak banks ought not to be let out of the PCA or the prompt corrective action framework, since they may end up bank rolling risky loans of over-leveraged non-banking financial companies (NBFCs). The government wants these banks to do precisely that so as to avoid job layoffs or disgruntled home buyers just before election season. The RBI top team is deeply conscious of their knowledge, their sense of duty and pride in RBI, while the government wants board members to supervise them closely. It hasn’t helped that at least one of the board members is an ideologue of the ruling party.
Governor Das has the hard task of bridging real and imagined differences. His handicap may be that he is seen as the government’s man and he may need to win the confidence of his own team at RBI even while delivering the tasks of a demanding government that will face the electorate in a few months. It is baptism by fire. But among the names doing the rounds, seems best suited to douse these fires and restore normalcy to government-central bank relations.
First Published: IST