Shaktikanta Das is Modi’s Man on RBI Hot Seat, But So Was Urjit Patel Before it Got Too Hot to Handle
Despite all the qualifications and seeming closeness with the powers that be, will it be easy for the new RBI Governor to fit into his predecessor Urjit Patel’s shoes? Perhaps not.
Shaktikanta Das will face his first big test later this week, when a board meeting is scheduled at RBI.
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New Delhi: The next Governor of the RBI, Shaktikanta Das, is no stranger to the ways the Modi government works. He has served as the finance secretary under Arun Jaitley and is currently a member of the 15th finance commission besides also being one of India's serving G20 representatives.
Not just a senior bureaucrat whom the Modi government seems quite comfortable with, Das has also previously served on the central bank's board. And to add to his wide bureaucratic experience, Das has been a vocal supporter of demonetisation.
But despite all these qualifications and his easy rapport with the powers that be, will it be easy for the new Governor to fit into his predecessor Urjit Patel’s shoes? Perhaps not.
Patel announced his shock resignation on Monday evening, after weeks of a very public spat with the government over several issues related to the central bank’s autonomy and allegations of the government favoring its wealthy cronies.
By resigning before his term ended, Patel became the first RBI Governor since liberalisation of the economy to quit his post mid-way.
So will his successor also have it rough? Remember, among the reasons for the deep divide between the government and the RBI was the perceived threat to the independence of the central bank, since it was being asked to lift lending curbs on some stressed banks and ease provisions under which defaulters could lose their businesses under the new bankruptcy law.
How the equation between Das and the government progresses from here on will probably depend almost entirely on whether the new Governor sees any merit in asserting the central bank’s independence or goes along with the government on most matters.
Das will likely have to curb every instinct for dissent and meekly agree to government’s bidding, just to retain the job. After all, he wouldn’t want a repeat of the Patel saga, where Patel was brought in as a distinct favorite but had a falling out by the time he decided to quit.
Patel was the Governor who fell in line with the Modi government’s demonetisation gamble and brought in the Rs 2000 note when the government thought black money was being hoarded through currency of Rs 500 and Rs 1000 denomination.
He was seen as a Modi man, till the need to assert the central bank’s independence took hold of him, so to speak. From here on, he was no longer the favoured poster boy. Das may take lessons from the Patel debacle and keep his own counsel.
Besides dealing with government demands, Das will also have to bear intense public scrutiny and minute examination of intent and purpose by the investor community.
Already, there have been reports of Moody’s Investor Service saying that any attempt to curtail the independence of the central bank would be “credit negative”. The stock markets have had a rough day before recovering, thanks to double whammy of RBI Governor quitting and the ruling BJP’s fading fortunes in key state polls.
The rupee has also tumbled. Will Das be able to assure investors, domestic and foreign, that despite his seeming closeness to the government, India’s central bank will remain largely independent?
Not just investors, India Inc is also likely to keep a strict watch on the new Governor. India’s big business has been facing tough times due to Patel’s insistence on defaulters following the stiff bankruptcy law provisions he brought in, which were not eased despite the government nudging Patel to do exactly that.
So from all of the above, it becomes clear that the flashpoints between the government and India’s central bank are far from being resolved. They remain on the table. It is up to Das now on how he navigates the delicate balance between perception and reality, between what the government wants and what an independent central bank would like to offer.
Perhaps the first litmus test that Das will face will be later this week, when a board meeting is scheduled at RBI. This meeting could throw up questions such as whether the lending restrictions on some state-owned banks should be eased, as the government has been suggesting.
Besides, the constitution of a committee which will examine the framework under which the RBI transfers its surplus to the government may also be expedited now, as the government’s own handpicked man is at the helm. The committee was announced last month but due to differences between the RBI top brass and the government, its constitution was held up. Easing liquidity in the NBFC sector and some other issues may also be taken up.
But one must remember that India’s economy is slowing, its NBFC sector is in a mini crisis after the collapse of IL&FS and the global economy is also showing signs of stress. In this scenario, the role of the RBI and its ability to work with the government assumes great importance. It would be to everyone’s advantage if Das were to focus on the job at hand without seriously compromising either on the central bank’s autonomy or its efficiency. (Get detailed and live results of each and every seat of the state Assemblies in Madhya Pradesh, Rajasthan, Telangana, Chhattisgarh and Mizoram to know which candidate/party is leading or trailing and to know who has won and who has lost and by what margin. Our one-of-its-kind Election Analytics Centre lets you put on the psephologist's hat. Know interesting facts and trivia about the elections. Elections = News18)
Not just a senior bureaucrat whom the Modi government seems quite comfortable with, Das has also previously served on the central bank's board. And to add to his wide bureaucratic experience, Das has been a vocal supporter of demonetisation.
But despite all these qualifications and his easy rapport with the powers that be, will it be easy for the new Governor to fit into his predecessor Urjit Patel’s shoes? Perhaps not.
Patel announced his shock resignation on Monday evening, after weeks of a very public spat with the government over several issues related to the central bank’s autonomy and allegations of the government favoring its wealthy cronies.
By resigning before his term ended, Patel became the first RBI Governor since liberalisation of the economy to quit his post mid-way.
So will his successor also have it rough? Remember, among the reasons for the deep divide between the government and the RBI was the perceived threat to the independence of the central bank, since it was being asked to lift lending curbs on some stressed banks and ease provisions under which defaulters could lose their businesses under the new bankruptcy law.
How the equation between Das and the government progresses from here on will probably depend almost entirely on whether the new Governor sees any merit in asserting the central bank’s independence or goes along with the government on most matters.
Das will likely have to curb every instinct for dissent and meekly agree to government’s bidding, just to retain the job. After all, he wouldn’t want a repeat of the Patel saga, where Patel was brought in as a distinct favorite but had a falling out by the time he decided to quit.
Patel was the Governor who fell in line with the Modi government’s demonetisation gamble and brought in the Rs 2000 note when the government thought black money was being hoarded through currency of Rs 500 and Rs 1000 denomination.
He was seen as a Modi man, till the need to assert the central bank’s independence took hold of him, so to speak. From here on, he was no longer the favoured poster boy. Das may take lessons from the Patel debacle and keep his own counsel.
Besides dealing with government demands, Das will also have to bear intense public scrutiny and minute examination of intent and purpose by the investor community.
Already, there have been reports of Moody’s Investor Service saying that any attempt to curtail the independence of the central bank would be “credit negative”. The stock markets have had a rough day before recovering, thanks to double whammy of RBI Governor quitting and the ruling BJP’s fading fortunes in key state polls.
The rupee has also tumbled. Will Das be able to assure investors, domestic and foreign, that despite his seeming closeness to the government, India’s central bank will remain largely independent?
Not just investors, India Inc is also likely to keep a strict watch on the new Governor. India’s big business has been facing tough times due to Patel’s insistence on defaulters following the stiff bankruptcy law provisions he brought in, which were not eased despite the government nudging Patel to do exactly that.
So from all of the above, it becomes clear that the flashpoints between the government and India’s central bank are far from being resolved. They remain on the table. It is up to Das now on how he navigates the delicate balance between perception and reality, between what the government wants and what an independent central bank would like to offer.
Perhaps the first litmus test that Das will face will be later this week, when a board meeting is scheduled at RBI. This meeting could throw up questions such as whether the lending restrictions on some state-owned banks should be eased, as the government has been suggesting.
Besides, the constitution of a committee which will examine the framework under which the RBI transfers its surplus to the government may also be expedited now, as the government’s own handpicked man is at the helm. The committee was announced last month but due to differences between the RBI top brass and the government, its constitution was held up. Easing liquidity in the NBFC sector and some other issues may also be taken up.
But one must remember that India’s economy is slowing, its NBFC sector is in a mini crisis after the collapse of IL&FS and the global economy is also showing signs of stress. In this scenario, the role of the RBI and its ability to work with the government assumes great importance. It would be to everyone’s advantage if Das were to focus on the job at hand without seriously compromising either on the central bank’s autonomy or its efficiency. (Get detailed and live results of each and every seat of the state Assemblies in Madhya Pradesh, Rajasthan, Telangana, Chhattisgarh and Mizoram to know which candidate/party is leading or trailing and to know who has won and who has lost and by what margin. Our one-of-its-kind Election Analytics Centre lets you put on the psephologist's hat. Know interesting facts and trivia about the elections. Elections = News18)