The government had last promoted SS Tarapore to the post of the DG (economist) in 1992 when the RBI already had two central bankers as DGs.
After a public spat between the finance ministry and the Reserve Bank of India (RBI) in 2018, the appointment of Michael Patra as a deputy governor (DG) on Tuesday has come as a short in the arm for the central bank autonomy, as the government has nominated a third DG from within the RBI by sacrificing its freedom to choose an outsider, sources told FE.
As per rules, the central bank is supposed to have four deputy governors – at least two must be from within the ranks (RBI officials), one must be an economist and the other must have commercial banking background. Since the RBI already has two DGs (NS Vishwanathan and BP Kanungo) who have been career central bankers, the appointment of Patra as the DG (economist) to fill in the vacancy created by the exit of Viral Acharya is seen as an attempt by the government to soothe frayed nerves at the RBI and boost its independence.
The government had last promoted SS Tarapore to the post of the DG (economist) in 1992 when the RBI already had two central bankers as DGs. However, it doesn’t mean the government would always stick to this new arrangement of having three career central bankers as RBI DGs.
Importantly, the long-simmering tension between the finance ministry and the RBI spilled over to the public space in October 2018 when Acharya, making a case for more powers to the RBI, warned that governments that made incursion into central banks’ autonomous regulatory space would incur “wrath of the markets”.
A government’s horizon of decision-making was rendered short like a T20 match, he had said, using a cricketing analogy. In contrast, “a central bank plays a Test match, trying to win each session, but importantly also survive it so as to have a chance to win the next session, and so on”, he had added.
A week later, then economic affairs secretary Subhash Chandra Garg took a pot shot at Acharya indirectly, indicating all was well with the markets despite the warning by the deputy governor. Subsequently, in December 2018, then governor Urjit Patel resigned, and in July 2019, Acharya, too, quit around six months before the end of his tenure.
“The fact that the government chose an RBI insider, despite having the power to appoint an outsider, is too big a signal to miss – it’s a signal that the government and the central bank have reset ties for the better,” said an official source. “Of course, there are other important reasons. Patra is experienced, has a proven track record at the RBI and doesn’t need time to adapt to the central bank’s scheme of things at a time when both the banking sector and the economy are going through stress,” added the source.
To be eligible to be the DG (economist), an aspirant must fulfil at least one of the three criteria: They must be “persons who have at least 25 years of work experience in public administration, including experience at the level of secretary or equivalent in the government of India; or from among persons who have at least 25 years of work experience in an Indian or international public financial institution; or from among persons of exceptional merit and track record at the national or international level in the relevant field(s)”.