On 12 December 2018, the Narendra Modi-government appointed Shaktikanta Das as the 25th governor of the Reserve Bank of India (RBI) after the controversial resignation of Das’ predecessor, Urjit Patel. His appointment came in the backdrop of intense tensions between the central bank and the ruling Narendra Modi-government and a controversial speech made by deputy governor Viral Acharya that brought the infamous feud to the public.

Six months after Das took over as governor, the RBI is a tamed animal. There isn’t even a trace of government-RBI public spat; there aren’t controversial speeches from any of Das’ deputies. In fact, the topic of RBI-government friction has disappeared even from the news headlines. Perhaps, that’s what the government wanted too---avoid unnecessary public mudslinging.

RBI Vs Govt

Only that the issue of contention that led to major conflicts remain more or less the same—RBI’s functional autonomy. Patel cited personal reasons for his resignation but reading between the lines, the nature of his resignation made it abundantly clear what went wrong between him and the government. Nowhere in his 88-words statement, Patel acknowledged the government; he only thanked his colleagues in the central bank.

During the course of Patel’s tenure, the RBI repeatedly reminded the government about why it should be left alone to do its job. In his public outburst, Acharya went a step further and warned the government that “the risks of undermining the central bank's independence are potentially catastrophic, a "self-goal" of sorts, as it can trigger a crisis of confidence in capital markets that are tapped by governments (and others in the economy) to run their finances.”

One issue that came up often was the use of Section 7 by the government that empowers the central government to give directions to the RBI, after consultation with the Governor of the central bank, as it may consider necessary in the public interest.

Reports said the Modi-government already used this provision against the RBI virtually undermining the latter’s autonomy after RBI refused on several demands put forward by the government.

Post Patel’s exit, the central bank appeared more lenient to the demands put forward by the government. The RBI board later agreed to look into these demands by constituting a separate panel. These included relaxations on MSME credit restructuring, relaxation of the prompt corrective action (PCA) plan of the RBI imposed on PSBs, issue of transfer of capital surplus to the government, RBI’s governance and easing capital requirement for banks under Basel-III. Some other issues of contention remain, such as the debate on the dual control over the state-run banks; RBI top brass thinks they don’t have enough powers to regulate the state-run banks. But, there are no public comments on this anymore.

The unmaking of RBI

At one point, the RBI top brass commanded tremendous attention in the media, the RBI governor was treated like a celebrity. The governor’s stardom reached its zenith during the term of ‘rockstar’ Raghuram Rajan. Rajan's comments on everything, ranging from the independence of RBI to interest rates to intolerance in the democracy, understandably irked the government. The Modi government chose to address this problem by not favouring a second term for Rajan. Interestingly, Patel was picked by the Modi government itself. The former economist was seen as somebody who would keep his head down at work, causing no headache to the government. Ironically, going by the events unfolded thereafter, Patel turned out to be even a bigger headache to the Modi-government than Rajan was.

Rajan’s and Patel’s stints raised a larger debate in the public. What makes a good RBI governor?

Is it someone who would cut the interest rates on demand from the North Block, limits his lectures to monetary policy and banking and at the most give "gyan" on the importance of Hindi on the Rajbhasha day at the central bank?

Or is it someone who would have an independent mind on monetary policy, no matter what the government and industry think, speaks up on socio-political issues relevant to the country overstepping his mandate and regularly comments on the government’s policies.

All governments typically prefer the first kind. And, the Modi-government was no different. It wanted a man who would fit within the rules.

Shaktikanta Das enters the scene

Here is where the appointment of retired IAS officer Shaktikanta Das assumed significance. It was Das, who as the former economic affairs secretary, spearheaded Narendra Modi government’s November 2016 demonetisation programme—a controversial economic exercise which invalidated 86 percent of currency in circulation overnight in search of black money in Asia’s third-largest economy. Incidentally, the biggest dent to RBI’s independence came during the demonetisation episode. The RBI was totally sidelined in the decision-making process and this began and ended as a political decision by the prime minister’s office.

Right from his first presser after taking charge as governor, Shaktikanta Das appeared to be everything his predecessor Urjit Patel was not. Das appeared relaxed and confident in fielding the questions unlike his predecessor and chose to address the media without deputies by his side. This was in stark contrast with a typical Patel presser which used to be mostly long questions followed by stiff, monosyllabic answers. That left the world to guess his thoughts. In contrast, Das came across as a man who loves to talk and take questions.

Das treated the RBI as just another official assignment, and that’s exactly what the government wanted. Since he took over the charge, the business is as usual at the central bank. No controversial comments from RBI top brass on RBI autonomy including from Viral Acharya, the MPC has cut the rates thrice and the RBI is about to relax the NPA norms for banks after a Supreme Court order struck down the controversial 12 February circular. Six months into Shaktikanta Das’ term in RBI, the central bank is a tamed, friendly beast.

Updated Date: June 07, 2019 17:07:50 IST

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