Will RBI Governor Shaktikanta Das get another term or pass the baton?

The match is being played at Arun Jaitley Stadium, but the entire financial world is watching it

Will he? Won’t he?

 

Once the results of the Maharashtra assembly polls were out on November 23, everybody was asking this question: Will Devendra Fadnavis be the chief minister?

 

As I write this column Sunday morning, a similar question is keeping the Indian financial system occupied.

 

Will he? Won’t he?

 

If he doesn’t, who will succeed him?

 

Also, if he gets another term, what will be its length – one year or two years?

 

Yes, I am talking about the Reserve Bank of India’s 25th governor, Shaktikanta Das, who will complete his six-year term on Tuesday.

 

Till about a fortnight back, people thought yet another term was a given. But since the announcement was taking time and the government kept quiet, curiosity gained momentum. Finally, on November 29, when the GDP print for the second quarter of the current financial year was released, the question, which was until then whispered in the corridors concerned, got louder and spilled into the street before becoming the talk of the town.

 

The speculation intensified with Prime Minister’s Principal Secretary PK Mishra's meeting with Das while the former was in Mumbai to deliver the 19th CD Deshmukh Memorial Lecture on November 28 and the governor’s presence in the North Block on Saturday.

 

In the past, there have been instances of a new governor assuming office at very short notice. Das himself was chosen for the job the day Urjit Patel resigned citing personal reasons, and he assumed office the very next day. D Subbarao’s name as YV Reddy’s successor was announced three days before Reddy demitted office.

 

However, typically, extension of a governor’s term is announced months in advance. Since the turn of this century, only Subbarao’s second term was announced less than a month in advance (27 days). After completing his first three-year term, Das got to know that he would remain governor for another three years almost two-and-a-half months (73 days) before he was to retire.

 

Of course, there have been times when the RBI governor’s appointment was rife with suspense. Subbarao’s journey from the North Block to Mint Road was one such occasion.

 

About a fortnight before Reddy’s five-year term ended, Rakesh Mohan, then a deputy governor, was in Jackson Heights, New York City, on an official trip when he got a call from then finance minister P Chidambaram’s office for an interview for the governor’s post. This was in August 2008.

 

As finance secretary, Subbarao harboured the ambition to be RBI governor (for many of India’s finance secretaries, RBI governorship was a logical career progression). However, till mid-August, when he applied for a week’s leave to visit Hyderabad, he wasn’t sure about getting the job. On August 26, a few hours before he was to catch a flight to Rio de Janeiro to attend a G20 meeting, he got a call from Chidambaram, enquiring whether he would be interested in the governor’s job.

 

Being the seniormost IAS officer, Subbarao was in line for the cabinet secretary’s post, which is hierarchically one notch above the governor’s position. At 8 that evening, he met C Rangarajan and Chidambaram at the latter’s house before leaving for the airport to catch a 1 am flight.

 

The half-hour interview turned out to be a sort of business meeting where the three discussed several things. Chidambaram asked him his views on having a monetary policy committee at RBI. Subbarao was not in favour of such a committee since he felt its presence would constrain the governor’s decision-making power. Chidambaram was of the view that the governor’s job was very much like the job of a corporate CEO, who would need to take the board along with him. Subbarao disagreed. By the time he returned to Delhi after the G20 meeting on September 2, the prime minister had signed off on his appointment.

 

After two economists, the RBI now has an IAS man again at its helm. Das is the first governor after S Venkitaraman who has not studied economics. A 1980 batch IAS officer, Das studied history at St Stephen’s College, New Delhi, along with Niti Aayog CEO Amitabh Kant. Kant describes Das as “a very sensible and forward-looking officer”.

 

Das, a great communicator, is the first governor with his own X (formerly Twitter) handle.

 

In many ways, Das has a very difficult assignment as RBI governor. Two successive governors before him had relatively shorter terms — Raghuram Rajan, three years; and Patel, who resigned after a little over two years in office. When Das took over, the relationship between the RBI and the government had reached a nadir.

 

Das built bridges with the government by transferring record funds from the RBI reserves following the recommendations of a committee headed by Bimal Jalan, though the amount was not as much as the government would have wanted. He also won the hearts of the insiders by updating the pension scheme — a contentious issue for decades. No wonder finance minister Arun Jaitley used to refer to him as a “bureaucrat’s bureaucrat”.

 

As governor, Das has steered the Indian economy through the Covid pandemic with finesse. He has deftly ensured the stability of the financial sector battered by the collapse of the Infrastructure Leasing & Financial Services Ltd, Dewan Housing Finance Corporation Ltd and Yes Bank Ltd, which was on the brink of failure. Among other things, to his credit, Das also fought hard to prevent cryptocurrency from making inroads in India.

 

One cannot expect the political administration to laud every action of an RBI governor. His stance on cryptocurrency is an issue where the government and the RBI are probably not on the same page. The RBI’s definition of inflation as enemy No 1 (rightly so, since sustained low inflation ensures growth) also may not have too many takers in Delhi.

 

But there is nothing unique about this. In the growth-inflation dynamics, there has always been conflict between the RBI and the government. Remember Subbarao’s last policy? In October 2012, the RBI chose to keep its key policy rate unchanged to fight high inflation – a day after the finance minister unveiled the government’s fiscal consolidation roadmap.

 

“Growth is as much a challenge as inflation. If the government has to walk alone to face the challenge of growth, then we will walk alone,” an upset Chidambaram had said after the policy was announced.

 

Reacting to the extensive media coverage on the differences between the government and the RBI in his book, Subbarao quoted former German chancellor, Gerhard Schröder: “I am often frustrated by the Bundesbank. But thank God, it exists,”. And, he said: “I do hope finance minister Chidambaram will one day say, ‘I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists’.”

 

Das is not the first governor to get an extension, but on his way to the second term, he broke quite a few records. While he is the second RBI governor to be at the helm for at least six years, no other governor has got a three-year extension in one shot like him. If he gets yet another term, and for two years, he will break the record of Benegal Rama Rao, who was governor for seven-and-a-half years (from July 1, 1949, to January 14, 1957) – the longest term any governor has had in the RBI’s 90-year history.

 

During a fireside chat with this columnist at the Business Standard 2023 BFSI summit, Das’s message to all who bat on the banking and non-banking finance turf, and to the stakeholders, was to play long term like Rahul Dravid. Often called “Mr Dependable” and “The Wall”, Dravid signifies the three Cs that are essential ingredients for success: Commitment, consistency and class. Das himself has played like Dravid.

 

Staying with the cricket analogy, I am tempted to say that the game is going down to the wire now. Till the last ball is bowled, we don’t know what’s going to happen. The match is being played at the Arun Jaitley Stadium, but the entire financial world is watching it.   

The writer is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking. To read his previous columns, please log on to www.bankerstrust.in 

 

X: @TamalBandyo