Is Arvind Panagariya 'the rock star at Mint Road' Modi needs as RBI governor?

Arvind Panagariya, vice-chairman of the NITI Aayog and former professor at Columbia University, is likely to emerge as Narendra Modi’s new general at Mint Road, succeeding the outgoing Reserve Bank of India (RBI) governor, Raghuram Rajan, if one goes by reports.

Firstpost couldn’t, independently, verify this.

If the Modi government has indeed zoomed in on Panagariya, the immediate problem it will have to face is the problem of bureaucratic hierarchy.

As NITI Aayog chief, Panagariya holds a Cabinet minister rank. But, the RBI governor has cabinet secretary rank. So, if Panagariya is appointed as RBI governor, he will be, in fact, taking a huge demotion. Else, the government will have to seriously upgrade RBI governor's rank. However, there is hardly any precedent for that in the past. Hence, such a move is unlikely.

 Is Arvind Panagariya the rock star at Mint Road Modi needs as RBI governor?

Arvind Panagariya, currently vice chairman, NITI Aayog

Impressive credentials

Panagariya has an impressive CV that makes him one of the few candidates who can fight the perception battle of succeeding ‘rock star’ Raghuram Rajan, at RBI. Beyond his impressive academic credentials, Panagariya also has the advantage of being an insider in the government for over one-and-a-half years.

The Indian-American economist is a familiar face in the North Block and is also someone who has seen the functioning of the RBI from close quarters.  Panagariya took over as NITI Aayog chief on 5 January, 2015.

As NITI Aayog chief, he has a deeper perspective on the real situation in the economy and the pain areas that will help him to fulfill his responsibilities at RBI governor’s role.

Panagariya’s experience in dealing with the fiscal policy side, his knowledge of international economy and intellectual credentials make him no less a ‘rock star’ than Rajan.  Earlier, Panagariya has served as a former chief economist at the Asian Development Bank and also had stints in various capacities with the World Bank, International Monetary Fund (IMF) and UNCTAD. Panagariya holds a PhD in Economics from Princeton University.

In March 2012, the Government of India honoured Panagariya with the Padma Bhusan, the third highest civilian honors the country bestows in any field.

For the Modi government, which has been unhappy with Rajan for his open criticism of the government on various issues, Panagariya is a friendly figure, who will stick to his mandate and someone who can ‘keep his head down and work’.

Where Rajan erred

One of the ‘mistakes’ Rajan made at RBI was that he failed to fathom the tolerance level of Modi-government to criticism, especially on political matters.  Quite often, Rajan appeared in public in the mindset of a Chicago professor or IMF chief economist when he went on discussing, debating and pointing out the issues in India’s social-political landscape while wearing the hat of RBI governor since September 2013. That didn’t sit well with the Modi government.

Rajan also had to a face a series of attacks from BJP leader, Subramanian Swamy, who raised various allegations against Rajan questioning both his personal integrity and professional efficiency. Swamy also questioned Rajan’s ‘mentally fully Indian status’ to head the critical position of RBI governor. Whether or not Panagariya, who is also an ‘Indo-American economist’ will be deemed as being “fully” Indian by the Swamys of the world, only time will tell.

But, even if that happens, such a charge is unlikely to be tolerated by Modi government since it will be aggressively protective of its appointee (look at what happened when Swamy attacked chief economic advisor Arvind Subramanian and economic affairs secretary Shaktikanta Das: Swamy had to face major resistance from Finance Minister Arun Jaitley).

Government man

Panagariya has been a 'government’s man'  all along,  Just three days ago, Panagariya said that the Modi government has put the economy back on the track of reforms and high growth compared to the last year of the Congress-led UPA-II government's term. Delivering a lecture on 'The Economy at Two Years under Prime Minister Narendra Modi' at the University of Rajasthan, Panagariya praised the government saying the "policy paralysis" during the UPA-II rule had hurt the economy badly and this government has addressed that problem.

"Today, the economy is far healthier compared to the last year of UPA-II in all macroeconomic parameters," he said, adding that the current government ended the paralysis by clearing numerous projects. But, at RBI, Panagariya will have much bigger challenges, of which the two critical ones are continuing the bad loan clean-up exercise initiated by the RBI under Rajan and pushing ahead with the banking sector structural reforms. Compared to his profile at NITI Aayog, the post of RBI governor commands much more global attention and his words will be subjected to media scrutiny on a daily basis, especially on the issue of growth-inflation trade off.

Even when D Subbarao took over as RBI governor from his post of finance secretary, he was broadly perceived as a ‘finance ministry man’, but later Subbarao had several uncomfortable encounters with the then finance minister P Chidamabaram on issues of monetary policy course and  RBI’s independence.

Unhappy with Subbarao’s reluctance to cut rates faster, Chidambaram once famously said “Growth is as much a challenge as inflation. If the government has to walk alone to face the challenge of growth, then we will walk alone.”

If speculations on Panagariya’s appointment as the next RBI governor are correct, the Modi-government has got a person who is the right mix of everything. An announcement could happen once PM Modi returns on Tuesday after the Africa-trip.

Panagariya comes with immense global perspective, understanding of Indian economy and the much-needed rapport with the government. He might still have to face the Swamy-test on his ‘mentally fully Indian status’ though — something his predecessor at Mint Road failed to clear.

Updated Date: Jul 12, 2016 11:34:51 IST