The successor to Reserve Bank of India (RBI) Governor Raghuram Rajan would be chosen by Prime Minister Narendra Modi and Finance Minister Arun Jaitley and not by a search panel headed by the Cabinet secretary, government sources said on Monday.
They also said the announcement of the next RBI governor would be made well in advance to avoid market speculation. They added the selection process was on.
Sources said the names in contention include former RBI Deputy Governors Rakesh Mohan and Subir Gokarn, RBI Deputy Governor Urjit Patel, Economic Affairs Secretary Shaktikanta Das and Chief Economic Advisor Arvind Subramanian.
Sources also said State Bank of India Chairperson Arundhati Bhattacharya, Banks Board Bureau chief Vinod Rai, and NITI Aayog Vice-Chairman Arvind Panagariya were not in the running. They said a bureaucrat would be the last option for the government and appointing a former Comptroller and Auditor General would lead to constitutional issues.
It was reported earlier that the Financial Sector Regulatory Appointment Search Committee (FSRASC), headed by the Cabinet secretary, would shortlist names for the Cabinet Committee on Appointments. That was ruled out on Monday.
"The FSRASC shortlist names for regulators. But for RBI it only does so till deputy governor. The decision on a governor will be made by the Prime Minister and the finance minister," an official said.
In his letter to RBI employees on Saturday, Rajan said he had decided to return to academics after consultation with the government. The move surprised observers, many of whom believed he would receive a second term.
The RBI governor has faced unprecedented personal attacks by Rajya Sabha MP Subramanian Swamy.
A source said while Swamy's attacks were ignored, the government sought views from a number of stakeholders, before offering Rajan another term, but he was not able to commit himself for three more years.
"This is a responsible government and decisions are taken keeping the national interest in mind. All the outside noise is not even considered," said a source, referring to Swamy's attacks. "There were discussions and it was a personal decision by Rajan," the source added.
"The policymaking framework is stable and it is important to maintain continuity. This is also about the RBI's institutional strength. Its independence and judgment is vitally important in this age of global volatility," the source said.