RBI Governor

Appointment of Shaktikanta Das, a retired IAS official, has predictably attracted a lot of criticism. There are three main layers of criticism. One is that he is not a hardcore economist. Second, he was supportive of demonetisation which 'failed to deliver intended results'. Last, his integrity is suspect.

He is the 25th Governor. Among these 25, only six have been 'economists'. RBI was established in 1935. The first economist to become a Governor was B.N.Adarkar. He was a stopgap pending appointment of a new Governor. He was earlier a Deputy Governor. He remained as Governor only for 42 days till he was replaced by S.Jagannathan, a career civil servant. This happened in 1970. (The Governor with the shortest tenure was Amitav Ghosh for 20 days in 1985 pending assumption of office by R.N.Malhotra., a bureaucrat. Ghosh was a commercial banker and then a Deputy Governor of RBI.)

There have so far been only six economists donning the mantle of RBI Governorship, namely Adarkar, I.G.Patel, Manmohan Singh, C.Rangarajan, Raghuram Rajan and Urjit Patel. There is no study to indicate that economist-Governors performed better than others.

P.Chidambaram has argued that Das was an advocate of demonetisation and that his appointment comes so soon after the appointment of another proponent of demonetisation, Krishnamurthy Subramanian, as the Chief Economic Adviser to GOI. Chidambaram argues that this means the government appoints only those who are favourably disposed towards government decisions. Politically this is what all governments do. Which government would want an ideologically inconvenient person in a key position? Chidambaram's alleged role in appointment of chairmen of various banks makes one wonder if this is not a case of the pot calling the kettle black.

The third criticism is voiced by Subramanian Swamy. He doubts Das's integrity in the light of his alleged complicity in and connivance at Chidambaram's various alleged misdemeanours.

These are controversial times. Therefore, each and every proposal is likely to be viewed as a colourable exercise.

Urjit Patel as RBI Governor

Choice of Urjit Patel as the Governor of RBI is apparently appropriate. He is like Raghuram Rajan in aversion for 'excessive' inflation. He prioritises price management over growth though he would not admit / claim it so bluntly. Businessmen who are looking or interest rate reduction will be disappointed in the short run.

Rajan put the fear of God into borrowers who tried to backtrack on repayment commitments. It will be interesting to see if Patel would resist pressure from business bigwigs. The Patel community of Gujarat had produced an RBI Governor even earlier in I.G.Patel. Urjit Patel was chosen as Deputy Governor of RBI by the UPA and hence he is politically non-controversial. His academic background is formidable having studied in LSE, Oxford and Yale. However, my sense is that (a hangover from Rajan) the Governor needs luck as much as academic credentials. We have to wait and watch if circumstances would be favourable to him.

His earlier association with the Reliance group as an employee is bound, sooner or later, to set some political tongues wagging.

Subramanian Swamy on Raghuram Rajan

Subramanian Swamy's contention that Raghuram Rajan is acting against our economic interests and therefore he must not be reappointed as RBI Governor is plainly over the top. Swamy has taken exception to Rajan not obliging the interests of ministers and industrialists by resisting their pressure to reduce interest rates.

Contrarily, Rajan deserves to be commended for his steadfastness in tackling inflation. Swamy's argument that reduced interest rates are not inflationary will have few takers. Economics being an inexact science, there is plenty of room for contradictory views. But it is illogical and discourteous to pillory the RBI Governor for his logical actions.

Rajan is an eminent monetary economist. He knows what he is doing. Swamy questions Rajan's retention of Green Card and proffers that as proof that the latter is out to scuttle India's economic progress. This is a strange argument emanating from a pathological hatred for the person.

Rajan would be happy to get back to teaching at Chicago or wherever his proven merit takes him. Unseating him from RBI will be an unjustifiable loss for India. We don't need a sycophant as RBI Governor if that is what Swamy desires.

Added on May 26th: Rajan may even be happy if his term is not extended because the dollar value of rupee is likely to drop drastically when the FCNR deposits brought in because of Rajan's concessions when he assumed office are maturing in September and a large quantum of dollars is expected to exit the country. If Rajan stays, his ingenuity will be tested. However, he may have a trick or two up his sleeves. Swamy has thrown a googly accusing the Governor of protecting Chidambaram's son from consequences of his violation of foreign exchange guidelines. This is an allegation that cannot be dismissed lightly.