Govt., RBI change stance as new Governor takes guard

One of the biggest challenges that a Reserve Bank of India (RBI) Governor faces is to maintain a balance between growth and inflation. Shaktikanta Das — who assumed charge as the 25th Governor last week — has a different challenge that he needs to balance, at least in his initial days. Mr. Das, who has spent 38 years in the government, joins RBI after Urjit Patel resigned rather abruptly, over differences with the government on various issues. The biggest challenge for Mr. Das is the perception that he is the government’s trusted lieutenant. Though these are still very early days, there are two events that throw some light on how Mr. Das is going about his new role. First is the interaction with the press on the first day he took charge. The way press conference was conducted, marks a change in stance. From tightly managed affairs with short replies, the new RBI under Mr. Das was ‘accommodative’ in the way it took questions from journalists. ‘Glasnost’ was the term used by many who attended the press conference as well as those who attended the L.K. Jha memorial lecture on December 14 in RBI — shortly after the central bank’s board meeting that was chaired by Mr. Das for the first time. Consultative approach During the press conference, Mr. Das made it clear that his approach would be consultative. No one could miss the point on why Mr. Das emphasised on consultation. His predecessor was often accused of not being consultative; he would even skip the customary pre-monetary policy meeting with the Finance Minister. “He is likely to be more communicative and consultative in his approach, which is a positive,” analysts at Nomura wrote in a note to their clients. Mr. Das met the chiefs of Mumbai-based public sector banks on the very next day to listen to the issues that bankers were facing. More such interactions with other banks would follow, he indicated. The statement after the board meeting on December 14 is the other event that gives an indication that the balancing act is already underway. The statement itself was not newsworthy, except for one sentence. “The board deliberated on the Governance Framework of the Reserve Bank and it was decided that the matter required further examination.” The statement lists all the things that were discussed in the meeting, from liquidity to financial literacy. But that is the template used after central bank board meetings. In this context, the statement after the previous board meeting on November 19, the last one chaired by the previous Governor, was an aberration. It mentioned ‘decisions’ taken in the board meeting for the first time. Incidentally, during Dr. Patel’s regime, the RBI stopped issuing statements after board meetings. Also all board meetings were held in the headquarters in Mumbai — a departure from past practice when board meetings took place in capitals of different States followed by interaction with the local media. The government’s insistence on a governance framework for the RBI was a major issue during Mr. Patel’s tenure. But central bank watchers say that under the new chief, the issue seems to have been put on the back burner going by the ‘further examination’ phrase in the statement after the board meeting on December 14. Mr. Das has already hit the ground running as the board members have agreed to put some contentious issues behind them. Mr. Das’s colleagues in the North Block point out how he managed the demonetisation fallout as Finance Secretary. “While it was evident that RBI was not happy with the exercise, Mr. Das, who was interacting with the RBI on behalf of the government multiple times a day at times, never allowed the differences to spill into the public domain,” one of his colleagues said. A few commentators pointed out he is not a technocrat who is heading an institution which is typically headed by someone trained in economics. But, the RBI, which is not only the monetary policy authority but also a banking regulator, has no dearth of economists, including at the level of Deputy Governor. What the RBI probably needs, particularly at this juncture, is an administrator who can navigate the present challenges with a fine balance.

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