For the Reserve Bank of India's newly appointed Governor Shaktikanta Das, the December 14 Board meeting of the central bank will be the first litmus test on whether he speaks his own mind or merely portrays himself as his master's voice.
There is much at the stake for the RBI and its prolonged battle for autonomy. The government is hell-bent on a reform that gives the board more powers in the RBI’s decision-making process. In an election year, it wants that all taps of liquidity are left open and therefore, it wants the RBI to lift lending restrictions from PSU banks without caring much for their financial health. And it wants to grab the central bank's most precious and long protected capital reserves so that they could be put to “productive use”.
At this crucial juncture, Das appears to be its best bet. He has in the past vehemently defended the government's moves, not only on the much-debated demonetisation exercise but also on the contentious issue of RBI's capital reserves. But now, there is a complete role reversal. Das has moved from the so-called beneficiary of the RBI's capital reserves to its custodian and from defending short-term political goals of the government to safeguarding long-term financial stability of the country.
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His appointment has raised many eyebrows. According to top economist and the country's first chief statistician Pronab Sen, the manner in which Das' appointment has been done within 24 hours of former RBI Governor Urjit Patel is “unfortunate” and it gives an impression as if it was pre-planned.
Global rating agency Fitch has already sounded a cautious note on macroeconomic risks after Patel's resignation.
This has multiplied Das' challenge and he will have to go out of his way to establish his reputation as an independent regulator. Patel has set the bar high.
In his first address to the staff after taking over as taking over as RBI Governor, Patel had told his colleagues that any effort to belittle the reputation of the central bank deserved "zero tolerance". There is consensus on the street that he lived up to that.
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Analysts are of the view that Das will have to draw a line quite like his predecessors who, despite being sent to RBI by the governments of the day, did not toe their line. Before Patel, D Subbarao was a hand-picked governor. He was the then finance minister P Chidambaram's choice for the coveted post. But once he reached Mint Street, his decisions on monetary policy matter often peeved Chidambaram and once, towards the end of the UPA's second tenure, Chidambaram was forced to announce to the press that he was left to “walk alone” to face the challenges of economic growth with little help from the Governor.
RBI has a massive Rs 9.59 lakh crore in reserves and the government wants it to part with a third of that fund. The central bank has made some stringent lending rules for the PSU banks in order to correct their balance sheets and bring them out of the NPA morass. And, it is fighting for its independence from the government which wants to amend the RBI Act and make it a board-driven entity with a tight grip on it. The first indications about whether Das will choose to protect an autonomous RBI or look the other way when it is being trampled on may emerge in Friday’s meeting.