When Sanjay Malhotra, a quiet, unobtrusive IAS officer, was chosen as the 26th governor of the Reserve Bank of India (RBI) earlier this month for a three-year term, observers were surprised — briefly. Soon came the realisation that the government merely wanted a safe pair of hands at the helm of the principal financial-sector regulator. Seemingly, what it looks for is policy stability and soundness, without any serious unpredictability. Malhotra might be a perfect fit for the job, with all the necessary attributes: intellectual acumen, technological savviness, and a demeanour that combines sternness with almost self-effacing restraint.
In his interaction with the media after assuming the coveted – but extremely demanding – office, Malhotra summarised his approach to the task at hand, by emphasising the need to ensure stability and continuity in policy. He stressed the importance of “trust” in effective regulatory governance, while expressing his disapproval of “day-to-day kind of policy.”
The 1990-batch Indian Administrative Service officer, however, also acknowledged the need for dynamism amidst the current set of challenges from the volatile external world, and reiterated the central bank’s commitment to financial inclusion, and leveraging technology for growth, while mitigating risks.
Malhotra will be helped by his rich experience in finance and taxation, gathered over decades while handling various assignments in his parent (Rajasthan) cadre, and the Union government, including the relatively recent ones as secretary-financial services, and the Union revenue secretary. He has actually walked the talk on policy stability– as revenue secretary, he was often seen advising the field officers of the tax departments, to be mindful of not upsetting business growth and refrain from doggedly pursuing immediate revenue targets, at the expense income generation. He used to invoke the “golden goose” analogy.
In the IAS fraternity, his seniors and other colleagues commend Malhotra’s way of functioning that dovetails deep insights with pragmatism. “Malhotra is an upright officer, who always keeps a macro perspective, while getting the policies implemented efficiently at the micro level,” says Sunil Arora, former chief election commissioner, who also belonged to the Rajasthan cadre. Malhotra, according to Arora, has always been quick in the uptake, and keenly understands nuances of policy-making. Malhotra makes it a point to not to “over-project” himself, nevertheless he unfailingly delivers, which is how a typical civil servant should be, adds Arora. Arvind Mayaram, former finance secretary, too describes Malhotra as a “quiet, methodical and thorough officer.”
As governor, Malhotra is left with a legacy of a sound, de-leveraged, and almost well-capitalised banking system. Yet, he has to face a unique set of immediate challenges –chiefly, the unfinished agenda of reining in inflation within the target band amid signs of a growth slowdown, and complexities caused by a certain intractability of global inflation, and a falling rupee. There are now heightened chances of capital inflows remaining relatively dry for longer months, with the US Federal Reserve expected to reduce rates more slowly in 2025. To be sure, many of Malhotra’s predecessors too had debuted into their jobs, under equally daunting, if not graver, circumstances, although the issues that each of them was confronted with, were different.
Shaktikanta Das, Malhotra’s immediate predecessor, had, for instance, faced the difficult task of protecting the financial system, markets and the larger economy from the undulations caused by the Covid-19 pandemic. He did it with finesse, and left no policy jerks to be noticed. When Raghuram Rajan assumed office as the 23rd RBI governor, the economy and the financial system were beset with multiple challenges – a dangerous build-up of non-performing assets in the banking sector, a policy torpor that caused excessive project delays, and the lingering effects of the global financial crisis.
As Rajan said in a recent interview, a clear go-ahead from the then finance minister Arun Jaitley helped him resolve the issues in a time-bound manner. Uncompromising steps like the asset quality review mechanism were taken, which cleaned up the bad loan mess, famously dubbed as the “twin balance sheet problem.” That vigil has since been kept by and large intact. While the later part of Rajan’s tenure saw the RBI’s relations with the government turning somewhat sour, Das’ six-year period was, at least till the fag end, marked harmonious relations with the fiscal authority, and a further consolidation of the financial markets prudence, besides creditable tackling of inflation and liquidity.The Narendra Modi government’s resolve on fiscal and financial prudence has never been in doubt, and the new governor can indeed rely on this, as he treads along.
Malhotra, his team at the central bank, and the Monetary Policy Committee, will have to act in tandem with the government in being circumspect about the potential impact of incoming Donald Trump Administration’s policies, especially the renewed threat of high tariffs, on global commerce and capital movement. If Trump’s actions indeed correspond to his words, they will have the potential to escalate into pernicious tariff wars. These need to be responded with an adequate, and appropriate mix of fiscal and monetary policies, and close coordination between the RBI and the government.
The usually mild-mannered Malhotra has also showed flashes of a tough administrator, and the courage of conviction. He eloquently defended a 28% tax on the full value of bets placed on online gaming platforms, despite the sheer pressure from the industry and assorted opinion-peddlers, who contended such an impost could put the thriving sector in serious jeopardy. A believer in the virtues of free markets, he also played a key role in carrying out electricity distribution reforms, and reducing “technical losses” in the sector, during his stints in the Rajasthan power departments and later, the Union power ministry.
Without disrupting the exchange rate policy of the last three decades that is sufficiently flexible, Malhotra will have to guard against any self-feeding depreciation of the currency. His tenure is also likely to see a revamped consumer price index (CPI), where food carries less weight. It will be curiously watched if he is inclined to veer towards the recommendations from certain quarters, including the Economic Survey authors that food prices be kept out of the inflation-targetting framework. There is a view that due to their large short-term volatility and amenability to supply issues, food prices can’t exactly be handled, by the monetary tools.
Malhotra was private secretary to Vasundhara Raje, when she became India’s first minister for small scale industries, in the Atal Bihari Vajpayee government, in the early years of the millennium. As various schemes to support and accelerate credit flows to MSMEs don’t appear to have the intended outcome yet, the new governor may take some informed steps in this regard.
Considering the strength that India’s financial and external sectors have acquired over recent decades, what’s needed now is an optimum level of economic growth, with an acceptable degree of price stability. However, though India’s central bank’s traits are now deep-rooted and leave no scope for radical shifts, in an uncertain external world, it will also have to be nimble-footed and agile. The challenge for Malhotra, who holds a degree in computer science and engineering from IIT Kanpur, also is to walk in step with the rapidly changing global financial ecosystem, where technology is a major driver.
A few years ago, one of his predecessors, Urjit Patel, was asked by media whether the RBI under his stewardship will be a dove or a hawk. Patel said he would prefer that the central bank is considered an owl. No one knows what Malhotra has in mind, but India awaits the imagery of the RBI that he has in mind.