New order at Mint Road

The government has moved swiftly to appoint Shaktikanta Das, a seasoned bureaucrat and a man with impeccable integrity, as the 25th Governor of the Reserve Bank of India. In normal circumstances, this is a great time to join as a central banker, as India’s retail inflation has been consistently trending not only below the legally-mandated target of 4 per cent but also lower than RBI’s own inflation estimates. Retail inflation for November has, in fact, fallen to a 16-month low of 2.33 per cent, latest data released on Wednesday showed. In his first media briefing after taking over, Mr Das expressed happiness over the benign inflation outlook and said the RBI would continue to be “very watchful” about inflation trajectory. But these are extraordinary times, and the new governor has to be watchful about many other issues as well — he joins at a time when the world is closely watching the RBI’s actions to ascertain whether it can retain its independence and autonomy after the recent series of sharp disagreements with the government, which is seeking to change the way the RBI functions, transferring its regulatory decisions from the central bankers to its board of directors. This has given rise to a debate on whether the RBI governor should be expected to act like a company’s chief executive officer.

Mr Das, who until May 2017 was serving as the economic affairs secretary in the finance ministry, is obviously aware of this concern about the RBI’s ability to stand its ground on key issues. That explains his statement that he would try to uphold the professionalism, core values and autonomy of the RBI. “I knew there’ll be apprehensions given my background in the government and that is why I wanted to make the ground rule quite clear,” he said. The new governor steered clear of giving his opinion on other contentious issues and said he remained open to discussing everything with all stakeholders. That’s a mature approach, given the public bickering between the central bank and the government in the recent  past. Most of these issues require calm consideration and a consultative approach. These include a clarity on the economic capital framework of the RBI to determine the extent to which the central bank’s reserves can be transferred to the government. The other is the imposition of the prompt corrective action framework that has constrained the operational freedom of 11 public sector banks (PSBs) and one private bank. Yet another is the capital adequacy ratio in PSBs. Apart from these structural matters, there are operational hurdles such as liquidity management, especially for the struggling non-banking financial companies.

Many have quibbled over Mr Das’ appointment on the ground that he does not have the same academic background as that of some of his immediate predecessors. But that is an unfair argument as in his previous job, Mr Das tactfully navigated the tricky path of remonetising the economy in the wake of the note ban decision of 2016. He is also well aware of the functioning of the government and the world outside the RBI’s domain — till recently, he served as a member of the 15th Finance Commission and as India’s Sherpa in G20. In any case, Mr Das is not the first civil servant to head RBI, and some of them did evolve in their new job quite fast. More than anything else, it is his ability to communicate with a diverse set of stakeholders that will be tested as he attempts to restore the RBI’s reputation. He has begun well by convening a meeting of public sector bank  chiefs on his second day in office and has announced that the RBI’s board meeting on Friday will be held as scheduled.

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