From the exalted heights of famed economists who have headed Mint Street, after a gap of 28 years a pure play bureaucrat Shaktikanta Das, an IAS officer of Tamil Nadu cadre, was named as the new RBI governor on Tuesday evening. By the following day, he had addressed the media disengaging himself from the reclusive and media shy tenure of his predecessor Urjit Patel. Patel would be the first governor in recent times not to give media interviews as Das became the first non economist since S Venkitaraman to be ensconced on the 18th floor of RBI. It is a marked departure from the past and an abrasive government is deliberately cutting the umbilical cord to paper over the frequent sticking points between the central bank and North Block. One can argue that as DEA secretary Das, an excellent communicator but a student of history, is well versed with the inner workings of the RBI. Inflation targeting and managing the bank's capital reserves are the Governor's key challenges given that interest rates are now part of the Monetary Policy Committee's remit and brief. Das will have to distance himself from the perception of being the government's handmaiden, one who is malleable, ductile and pliant to follow their line. He needs to understand that the primacy of the RBI and its autonomy are paramount.
Reconciliation and consultations with all stakeholders proposed by Das may well be his best strategy for too many feathers have been ruffled due to the intensity of the sustained pressure on Patel. His first statement also addresses in part the central government’s demand to have wider consultations on all wider policy issues relating to monetary sector which is the RBI's domain expertise. Given that the Indian polity has refused to look at supply side interventions over the years, it is the RBI which controls inflation management. Benign and tempered inflation will be his greatest asset. It is clear that Das will have to hit the ground running after the acrimonious and shocking exit of his predecessor, Patel. Mind you, Das was in the hunt for Raghuram Rajan's job when his contract wasn't renewed, but the PM chose then Deputy Governor Urjit Patel instead. Das's dialogue skills are excellent, but the task ahead is gargantuan and perilous.
His commitment to uphold core values, professionalism, credibility and autonomy of RBI would be watched with great care in the days to come. Emphasising on the very need for discussion between RBI and government that runs the economy and pilots major policy decisions is a sure sign of establishing a healthy working relationship. Unlike Patel, the reticent and shy economist, Das has come out as a plain and simple straight talker who means business from day one. Das’s priority to deal with issues hobbling the banking sector is significant for more than one reason. However, any move to deplete the reserves of the RBI to boost public spending will be viewed with trepidation and lead to risk aversion. Any ostensible move to deviate from the Patel path at this precise moment would be suicidal. That the government showed alacrity in naming Das means that he has been sent with an agenda, but by pursuing the shallow process of emasculation of a credible institution would be counter intuitive at this stage. Will Das be his own man or the FinMin's man or retain his independence subsumed by the enormity of the central bank's visage, remains a matter of conjecture?
While consolidating the banks' balance sheets due to NCLT resolution process in progress, Das may take this opportunity to open up a liquidity window for micro, small and medium enterprises. This will not only address the second major issue flagged by government but may also perk up new opportunities for small businesses and expand a somnolent job market. A complete squeeze on lending by banks cannot be a policy option for RBI, a conservative line hitherto pursued by Urjit Patel’s team.
Das’s decision to go ahead with Friday’s meeting of the RBI Board as scheduled earlier also indicates his confidence to tackle issues head on rather than soft-pedalling done by Patel’s team. On key issues like interest rate management and tackling inflation, the new governor will have to go with recommendations of the six-member monetary policy committee.
Taking the RBI top officials and MPC along will perhaps be the biggest challenge for Das, who is known for team building capacities in the finance ministry. Also, his exposure in the finance ministry as economic affairs and revenue secretary will come handy in dealing with banking and RBI issues. D Subba Rao was sent to Mumbai from FinMin by P Chidambaram but as soon as he sat in the Guv's chair, the central banker took over his spirit.
It is imperative that the BJP government give Das enough space and time to settle down and address several of the contentious issues. Treating the RBI top brass with the respect that they deserve and positively taking their recommendations would also augur well for the Narendra Modi government that is facing a serious talent crunch. The government should also effectively negate arguments that it was out to destroy institutions of excellence with autonomy.
Das, on the other hand, may have to quickly set up a panel that will make its recommendations on larger issue of reserves utilisation, deployment and their management hitherto stonewalled by Patel. His vast experience as a bureaucrat will help chart a new course for RBI, though it needs to be mentioned that DeMo took place under his watch. Also, Das will have to take a call on pending issues bogging large institutions like Kotak Bank, Yes Bank, ICICI and IL&FS with clarity. To be North Block's man in the RBI will not help. Given that there’s hardly anytime before presentation of the next budget by finance minister Arun Jaitley on February 1, Das will have to iron out differences with the government early. There is no reason why he cannot successfully pilot RBI banking on his rich experience as an administrator, sherpa at G-20 and various assignments in the government. For starters, he will have to learn the art of RBIpolitik.