DH Analysis: Das as Guv: Will it dent RBI's image?

Shaktikanta Das. REUTERS

Although the appointment of Shaktikanta Das as Governor of Reserve Bank of India (RBI) has cheered markets, there is a perception in the public that this move might dent the image of the central bank. 

There are many factors to prove this perception.

The move is akin to the appointment of controversial RSS ideologue Swaminathan Gurumurthy on the board of RBI earlier this year, which is an attempt to influence the decisions of the central bank in favour of the government.

Commenting on the development, former Chief Economic Advisor Arvind Subramanian says: “Let's not get into personalities, but any perception that RBI board is getting politicised due to the appointments, it could potentially undermine the institutions. We should try as far as possible to avoid that.”

Also read: Guv vows to uphold RBI's autonomy; open to consultation

The same yardstick applies to Das, who is widely seen as the face of failed demonetisation drive by the Prime Minister Narendra Modi. During the demonetisation era, Das used to hold daily pressers on behalf of the government, updating people about daily tweaking that the government used to do in the guidelines regarding cash withdrawals. Among the many controversial plans during that phase in 2016, Das had announced a proposal to put indelible ink on the index fingers of people to prevent them from exchanging old currency multiple times beyond specified limits. Following nationwide outrage, the move was later withdrawn.

The line towed by Das during the note-ban era rings caution bells on the autonomy of the central bank, which has been a centre of the debate of late.

Das, in his first presser after taking over as the apex bank chief said, “I will do everything to uphold core values and the autonomy of RBI. RBI has the core competence to deal with any technical or monetary issues.”

But he was equally quick in casting aspersions as he said that ”the government operates the RBI”, in his opening remarks. The doubts are further validated by him, as according to the highly-placed sources, he would be meeting the government officials over the issue of the liquidity crunch in the country’s shadow banking space and also credit flow into the economy.

Also read: New RBI Guv to start innings with meeting PSU banks

The RBI, which is tasked with being the banking regulator, has been on the balance sheet clean-up of Indian banks, which are overly burdened by the mounting bad loans. The government is of the opinion that the bad loan clean-up is impacting the credit flow to the Micro, Small and Medium Enterprises (MSMEs), that it considers as a crucial vote bank in a build-up to the general elections.

In fact, in the immediate aftermath of Das’ appointment as the RBI chief, Twitterati in India went gaga over jokes on his appointment: and it can be simply disastrous for the central bank that acts as the backbone of the world's 6th largest economy.

On the other hand, political acceptability is also a cause of concern for Das, who holds such a critical portfolio.

While Subramanian Swamy of ruling BJP criticised his appointment, alleging that he has collaborated with former finance minister P Chidambaram on various scams. Ironically, Chidambaram also criticised his appointment, criticising Das' pro-demonetization stance.

Also read: DH Analysis: Patel's exit dents govt's credibility

What is more worrying is the fact, that all this comes at a time when RBI is battling various issues of economic importance, which are structural in nature – GDP with a downside, falling rupee, liquidity crisis, the impact of crude on current account deficit and fiscal deficit.

However, markets are hopeful that Das’ proximity to the government will help the warring factions – RBI and the government – tide over the differences. “Das is an experienced bureaucrat who has worked in the Government in various capacities. Thus, he is in a better position to handle the working relationship between the RBI and the Government,” global investment bank, UBS said in a research note.

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DH Analysis: Das as Guv: Will it dent RBI's image?

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