Policy stability: Shaktikanta Das to lead RBI for another three years

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October 30, 2021 4:30 AM

Das, a career bureaucrat, was picked by the government in December 2018 to helm the central bank following the surprise resignation of Urjit Patel in the aftermath of a public spat between the finance ministry and RBI.

The move also signals interest rate normalisation could be gradual, and growth will take precedence over inflation in the central bank’s scheme of things until the economic recovery is firmly entrenched.The move also signals interest rate normalisation could be gradual, and growth will take precedence over inflation in the central bank’s scheme of things until the economic recovery is firmly entrenched.

The government has reappointed Reserve Bank of India (RBI) governor Shaktikanta Das for another three years, suggesting a continuity in monetary policy settings at a time when both the Centre and the central bank are striving to bring the Covid-ravaged economy back on its feet fast.

The decision by the Appointments Committee of the Cabinet (ACC) will take effect once the current three-year term of Das ends on December 10. Das’ tenure, therefore, will briefly exceed the current term of the government.

The move also signals interest rate normalisation could be gradual, and growth will take precedence over inflation in the central bank’s scheme of things until the economic recovery is firmly entrenched.

The rupee appreciated 0.4% against the dollar, while the benchmark 10-year bond yield rose one basis point to 6.38% on Friday, responding to the news of Das’s reappointment.

Das, a career bureaucrat, was picked by the government in December 2018 to helm the central bank following the surprise resignation of Urjit Patel in the aftermath of a public spat between the finance ministry and RBI.

Just over a year later, the Covid crisis hit the economy hard, forcing the central bank to go on a path of heightened uncertainty with fortitude. Das pledged to do “whatever it takes” to supplement the government’s efforts to steer the economy out of the unprecedented crisis by supporting growth by pruning the repo rate to as low as 4% and adopting quantitative easing.

RBI adopted a judicious mix of conventional and unconventional methods to maintain liquidity in the system. When supply-chain bottlenecks and global commodity price rise pushed up inflation beyond the central bank’s comfort level (2-6%) for two straight months through June, the RBI didn’t resort to knee-jerk reaction. Instead, it maintained its accommodative stance and agreed with the government that supportive policies must continue for some more time.

Both the central bank and the IMF expect India’s real growth to hit 9.5% year-on-year in the current fiscal, the highest among major economies, after a tumultuous FY21 when GDP shrank 7.3%. However, with the economy gradually returning to normalcy, Das’s next challenge would be to restore the price stability objectives so that inflation doesn’t derail the growth momentum. Another challenge would be to prevent bond yields from any irrational spike and ensure the government’s elevated borrowing programme goes on smoothly at a time when the global crude oil prices threaten to hit multi-year highs.

A 1980-batch IAS officer of the Tamil Nadu cadre, Das served as the revenue and economic affairs secretary before his retirement in 2017. He was then appointed as a member of the Fifteenth Finance Commission and also India’s Sherpa to the G-20. During his tenure as the DEA secretary, Das was the lead finance ministry bureaucrat to oversee the highly-controversial demonetisation move by the government in November 2016.

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