As the dust settles on another occupant of the 18th floor in the Reserve Bank’s building located at Shahid Bhagat Singh Road at Mumbai, there is a general consensus among observers that after two foreign trained economists like Raghuram Rajan and Urjit Patel, the next appointment is likely to be of a dyed-in-the-wool administrator who understands the nexus and relationship between Mint Street and North Block.
Two names doing the rounds are that of Hasmukh Adhia, who retired as finance secretary on November 30 this year, and former economic affairs secretary Shaktikanta Das who retired earlier.
While both the bureaucrats have enjoyed an illustrious career in the government, the decision to choose any one of them would draw a parallel with the recent appointment of India’s chief economic advisor, Krishnamurthy Subramanian.
While Subramanian is a trained economist from a foreign university, his background of being a professor in the Indian School of Business, made him the choice of the government that has sought Indian ethos in deciding India’s economic policies.
If Patel’s resignation had come a few weeks ago, another name that could have been a strong contender for the top job at India’s central bank was that of former Chief Economic Advisor, Arvind Subramanian, who shared a cordial relationship with finance minister Arun Jaitley during his tenure.
But his recent remarks on demonetisation-calling it a draconian policy decision- may have ruled him out.
Some insiders are also of the view that economist Surjit Bhalla could be a strong contender for being in-charge of India’s monetary policy. Bhalla, has been a strong votary of a low interest rate regime to push economic growth. It is to be noted that he is currently a member of the Prime Minister’s economic advisory council and has continuously defended demonetisation as well as other economic policies of the NDA government.
However, his lack of experience in administration may go against him in a system that functions in a top down hierarchical approach, suited most to bureaucrats.
The new RBI governor will have a baptism by fire as the present government would want some quick fixes to the banking sector’s rising non-performing assets ratio.
According to the Reserve Bank, the gross non-performing advances (GNPA) ratio stood at 11.6% in March 2018 for scheduled commercial banks. For the public sector
banks, the ratio stood at 21%.
At the same time, the new appointee will have to work on reinforcing the credibility of his position, as foreign investors have already expressed concerns over the tussle between the central bank and the government, that led to the sudden resignation by Patel.
In a note to its investors’ brokerage firm CLSA said, “the abruptness of this resignation (immediate effect and the Governor thanking only the RBI directors and employees and not the government) will likely fuel speculation about RBI’s autonomy issues and the government's credibility in general.
“Financial markets are likely to see this abrupt development negatively. The currency is already depreciated by 1.5 per cent after the India market closure in the non-deliverable forward offshore market. But when the spot market opens tomorrow, RBI may intervene in the currency market.”
“Also the SGX Nifty is down 1.2 per cent on today’s close (which was already down 2 per cent today). The 10-year G-Sec yield already moved up by 12 bps during the course of the day today. On the positive side, the market may begin to factor in easier monetary policy, liquidity developments.The next Governor’s appointment will be crucial in restoring the credibility of the Govt and the RBI.”
Clearly, both the government and the new RBI governor will have to walk a tight rope. Their performance would be keenly watched by the government’s critics as well