Shaktikanta Das was among the three short-listed candidates for RBI governor before Urjit Patel was finally picked up the 24th RBI governor in September 2016. This also came in handy for the government.
On a day results of elections to five state assemblies exposed the vulnerability of the Narendra Modi government less than half a year before the next general elections, it named Shaktikanta Das, a tested bureaucrat perceived to be close to it, as the new governor of the Reserve Bank of India (RBI).
Das’s appointment for three years, which came within 24 hours of Urjit Patel’s resignation amid a rift between the Centre and the RBI on a host of issues including how the central bank is governed, gave credence to the notion that the government had anticipated Patel’s exit and thought of alternative arrangements.
The Appointments Committee of the Cabinet’s quick decision, without the customary rigmarole of inviting applications and interviews, demonstrated the government’s keenness to keep the pace of current deliberations over RBI’s reserves transfer policy and empowering its board.
A crucial meeting of the RBI board will take place on December 14 as scheduled.
The fact that Das was among the three short-listed candidates for RBI governor before Patel was finally picked up the 24th RBI governor in September 2016, also came in handy for the government.
Bhubaneswar-born Das, 61, belonged to the Indian Administrative Service (Tamil Nadu Cadre) for over three decades and retired as secretary, department of economic affairs in the finance ministry, in May 2017. He was noted for his articulate defence and handling of demonetisation and its aftermath in late 2016 and early 2017.
Currently a member of the 15th Finance Commission and India’s Sherpa to G20, the comity of developed and emerging nations tasked with ensuring international financial stability, Das has rich experience in the finance ministry in different capacities, including as revenue secretary. He was a part of the seven central-budget teams during his tenure in the ministry from November 2008 up to May 2017.
While the last two RBI governors — Patel and his predecessor Raghuram Rajan — were renowned economists, the galaxy of India’s central government governors include several bureaucrats. In recent decades, Yaga Venugopal Reddy and Duvvuri Subbarao, who respectively were the 21st and 22nd governors of the central bank, were roped in from the IAS fraternity, although both were also trained economists. Das is perceived among his peers as an ‘upright’ bureaucrat with a style of functioning which is highly organised.
Das as RBI governor could minimise the chances of any potential conflict between the government and RBI. Experts note since the inflation-targeting framework has been adopted by the RBI and a structured Monetary Policy Committee (MPC) is in place for regular review of the monetary policy, the governor or for that matter the RBI’s executive management have to pay heed to the three non-RBI members of the six-member MPC on interest rates and policy stance.
Economic affairs secretary Subhash Chandra Garg has recently told FE that an important item for discussion at Friday’s RBI board meeting would be its governance. “It is the central board of the RBI in which, by law, all powers relating to conducting the business are concentrated. The board makes regulations under Section 58, which are approved by the government, which decides what subjects can be retained by the board or given to the governor and other committees,” Garg had said.
Though there were simmering tensions between the government and RBI right through the Narendra Modi government’s tenure, it came out in the open after deputy governor Viral Acharya in a speech delivered on October 26 used some unusually strong words to decry the government’s perceived incursions into the RBI’s autonomous space. Using the alibi of a court direction in the context of the stressed assets in the power sector, the government had earlier broken convention and invoked the never-used Section 7 of the RBI Act that kept the RBI under the threat of binding directions on a host of regulatory matters including the prompt corrective action (PCA) framework instituted by it for weak banks.
It is believed that the government’s immediate demand on the RBI is for a change in its economic capital framework. The government basically wants more of the central bank’s reserves to be transferred to it and the changed framework to come into effect in its term. As per the RBI’s annual accounts as of end-June, contingency fund and asset development fund aggregated Rs 2,54,919 crore, making up for 7% of total assets held by the RBI. But the perception that the RBI capital is in excess of what generally other central banks have is because of the currency and gold revaluation reserve (CGRA)–which amounts to Rs 6,91,641 crore, or 19% of the central bank’s assets–even though the gains are purely notional.
The RBI has long argued that large parts of its realised profits are anyway being transferred to the government every year; while reserves built up to meet contingencies and internal capex needs only 7% of total assets, unrealised gains (CGRA) can’t be counted for potential transfer to government.
While reports suggested that the government was eyeing as much as Rs 3.6 lakh crore from the RBI reserves, Garg had recently denied this but said that discussions were on to fix the ECF.