On October 29, the Union Government extended Shaktikanta Das’ term as Reserve Bank of India (RBI) Governor by three more years. If he completes the extended tenure, Das would be the longest-serving governor of the Central bank in about seven decades.
Das’ re-appointment for three years isn’t a surprise. As far as the government is concerned, he has checked all the right boxes as the RBI chief.
A ‘friendly’ RBI Governor
The former economic affairs secretary has been everything the Narendra Modi government wanted in an RBI chief after the controversial stints of Urjit Patel and Raghuram Rajan, which were characterised by constant conflicts between the RBI top brass and North Block (the Finance Ministry).
The theme of the Central government undermining the RBI’s autonomy constantly played out during Rajan’s and Patel’s tenures. Das changed that narrative. Unlike his predecessors, he was a quiet Governor who chose to keep his head down. Not once after his arrival did the issue of the RBI’s autonomy come up in news headlines.
Das was articulate, approachable to his colleagues and the media, and a consensus man who kept the communication channels alive with the top bosses in Delhi.
Government’s trusted man
Das had been the Government’s trusted lieutenant even before his stint on Mint Road began. In fact, he spearheaded Prime Minister Narendra Modi’s controversial demonetisation drive while the then RBI governor, Patel, took a backseat.
Das has maintained his smooth relationship with the powers that be even after his exit from Delhi. For a government that faced tough days due to Rajan’s outspokenness and Patel’s open rebellion, the silent Das at RBI headquarters was a blessing.
In nearly three years at the RBI — Das took charge in December 2018 — the former civil servant changed the larger-than-life image associated with the RBI governors. Indeed, the RBI and the government have been on the same page on almost every issue.
A growth-supportive RBI
The RBI, under Das, took a liberal approach to inflation targets, unlike his predecessors. This was favourable for the growth-supportive stance of the Government. As Barclays said in a note, this was a shift from the approach of the MPC under former Governor Urjit Patel, which was characterised by a commitment to stick to the midpoint of the 2-6 percent target range.
The RBI took a dovish stance throughout the Das regime, often ignoring persistently high inflation and largely focusing on growth revival. “We continue to expect the RBI to pursue a relatively dovish stance while it focuses on growth amid a more flexible inflation-targeting regime that has evolved under Governor Das,” Barclays said in the note.
Since February 2019, the RBI has cut its key policy rate by 250 basis points to support growth. One bps is one hundredth of a percentage point. The policy stance of the MPC continues to be ‘accommodative’. The MPC is divided over the continuation of the accommodative stance with MPC member Jayanth Varma openly dissenting in multiple policy meetings.
The reappointment of Das is a sign of continued trust from the government, Barclays said. “Under Governor Das, the Central bank has done the heavy lifting to support the economy through the COVID crisis, with fiscal policy playing a supportive role. We also view the governor’s reappointment as a vote of confidence in the RBI’s policy stance,” the Barclays note said.
Without doubt, Das did a commendable job in managing the COVID situation. The RBI has been much more proactive and responsive in managing the liquidity situation and providing comfort to distressed sectors. Be it the six-month term-loan moratorium announced last year, the two rounds of loan restructuring schemes announced subsequently, or the series of liquidity measures that it laid out, the RBI response was quick and effective to alleviate the near-term pain of COVID-hit segments.
The RBI’s timely interventions helped the Government politically during the pandemic.
The government’s decision to re-appoint Das for three years is thus a signal of its confidence in the Governor, something Das’ predecessors arguably didn’t enjoy. While Patel quit ahead of his term citing personal reasons but clearly in protest over a range of contentious issues, Rajan wasn’t given an extension (the governor wrote a letter announcing his intention to return to academia on completion of his term).
Das’ re-appointment is good news for the RBI, which is in the midst of the fight against COVID. Das’ colleagues at the RBI believe that the extended stint will help the Central bank in policy continuity during the COVID fight.
Das has multiple challenges awaiting him. Among them, unwinding the easy-money regime will be the tricky one. In his last post-policy address, the Governor said he didn’t want to rock the boat when the shore is visible. But, the RBI will have to embark on a path towards normalisation. It has already signalled that by discontinuing bond purchases under the GSAP, while assuring the markets that liquidity will remain adequate.
The RBI Governor also needs to resolve some of the long-pending internal issues at the Central bank, including the wage settlement issue of RBI employees. Thirdly, the COVID situation is still evolving with the threat of a third wave still looming.But then, Das is no stranger to challenges.