Pedestrians walk past the Reserve Bank of India (RBI) headquarters in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Shaktikanta Das Is New RBI Governor 

Veteran bureaucrat Shaktikanta Das took over as the 25th Governor of the Reserve Bank of India for a period of three years today.

The appointment follows the surprise resignation of Urjit Patel on Dec. 10. Patel decided to step down immediately citing “personal reasons” amid a stand-off with the government on a host of issues.

Who Is Shaktikanta Das?

Shaktikanta Das is a 1980 batch IAS officer from the Tamil Nadu cadre. He is currently a member of the Fifteenth Finance Commission. He also represents India at the G-20 in a role of a sherpa.

Das was the economic affairs secretary to the Government of India till May 2017 and was in office when demonetisation was announced. During that period, when cash was in short supply, Das was often seen defending the government’s decision even as the RBI remained silent.

Das toed the government’s line that demonetisation would help reduce unaccounted wealth in the economy, bring down the problem of counterfeit money and help push digital payments. He had also countered the concerns over the growth impact of demonetisation by saying that any short-term dip in growth has been factored in.

Since he left the Finance Ministry, Das has retreated from debates around current economic issues. As such, he is yet to weigh in on some of the issues of dispute between the RBI and the Government.

“Shaktikanta Das has been involved with economic affairs for a long time and I am sure he will be a good governor,” said former RBI Governor C Rangarajan.

I am glad that the government made a quick appointment because any delay would result in the financial markets reacting. In a way, therefore it is welcome. I think he should maintain the credibility and independence of the Reserve Bank.
C Rangarajan, Former RBI Governor

Das has been part of the government, he knows how the machinery works and keeping that conversation channel going is very important, said Neelkanth Mishra, managing director and India economist and strategist at Credit Suisse.

I felt that if the government quickly announced a replacement, who was credible and non-controversial, the markets would take comfort. The decision making and analysis would focus on what are the next steps and start looking forward.
Neelkanth Mishra, Managing Director, India Economist and Strategist, Credit Suisse

Das’ appointment comes just in time for the next RBI central board meeting. The agenda for the Dec. 14 meeting has been circulated, said RBI board member Satish Marathe. “If the (new) governor feels he needs time, those can be deferred and be taken up at a subsequent meeting. It is not a big thing.”

Also read: RBI’s Dec. 14 Board Meet Stands For Now, Says Economic Affairs Secretary

Union Finance Minister Arun Jaitley and Shaktikanta Das, Secretary (Economic Affairs) during the BRICS India 2016 Seminar (Source: PTI) 
Union Finance Minister Arun Jaitley and Shaktikanta Das, Secretary (Economic Affairs) during the BRICS India 2016 Seminar (Source: PTI) 

The Return Of The IAS Governor

Das’ appointment to the top office at the RBI also marks the return of an IAS official as RBI governor.

Over the years, the central bank has seen some celebrated Governors from the civil services including YV Reddy and D. Subbarao. However, in some quarters, questions have been raised about whether the RBI would be better served under the leadership of experienced technocrats and economists. Following Subbarao’s tenure, Raghuram Rajan was appointed as governor followed by Urjit Patel.

With Patel stepping down, the government has once again gone back to the civil services pool to pick a governor. Will this signal that New Delhi is picking a RBI governor who is close to the Government? Not necessarily, said Rangarajan.

There have been many IAS officers who have been governors of the Reserve Bank. I certainly do hope that once he (Das) takes charge he will become part of this new institution and maintain its independence, autonomy and credibility.
C Rangarajan, Former RBI Governor

Taking Over Amidst A Tussle

The new governor takes charge at a time when a number of contentious issues persist between the central bank and the government.

Crucial among these issues is the governance structure of the central bank and the size of the RBI’s balance sheet. At the last board meet of the RBI’s central board in November, it had been decided to set up a committee to re-look at the economic capital framework adopted by the RBI. The members of that committee were to be picked jointly by the central bank and the government. A final decision on this is awaited.

The board is also scheduled to take up the issue of governance reforms, which may give the central board a bigger say in the RBI’s decisions.

Urjit Patel had opposed the government on both those fronts.

A more immediate task for the new governor may be to address concerns that banks are facing regulations that are excessively tough and non-bank lenders are being starved of liquidity.

The government has sought a relaxation in the Feb.12 circular which prescribed a new stressed asset framework for banks. In particular, the government has argued that economically important power projects be kept out of the ambit of that circular. A demand has also been made that the prompt corrective action framework be eased. Patel and deputy governors Viral Acharya and NS Vishwanathan have opposed this.

On liquidity, the RBI has said that is providing adequate funds to meet the needs of the economy even though the government continues to argue for easier liquidity. Following the monetary policy review last week, deputy governor Acharya said the RBI is ready to be the lender of last resort to NBFCs but the current situation does that require that level of support.

The new governor’s stance on each of these issues will now be closely watched by domestic and international investors.

Given that India now operates under a Monetary Policy Committee regime, the uncertainty over monetary policy will be limited, said independent expert Neeraj Gambhir. “The second and more important issue is of RBI's capital. I think a middle ground needs to be found,” Gambhir said.

We’ll have to see over the next few months how some of the contentious issues get resolved. Mr Das has to be rebuild the credibility of the institution and that is what the markets will be closely watching.
Neeraj Gambhir, Independent Market Expert

Also read: Urjit Patel: A RBI Governor Most Controversial

Also read: India Deserves Better Than Urjit Patel’s Untimely Exit

Watch live analysis of the appointment of Das as the RBI Governor.