Shaktikanta Das as RBI governor: Govt reposes faith in IAS as economists Raghuram Rajan, Urjit Patel went overboard with ‘autonomy’

When economic historians look back at the last five years and analyse the short-lived tenures of highly reputed economists Raghuram Rajan and Urjit Patel at the Reserve Bank of India they may well come to the conclusion that the Indian state experimented with two internationally qualified professionals as head of the RBI and decided it was best to return to the long-term norm of appointing a civil servant to head the central bank. The State has its reasons.

 Shaktikanta Das as RBI governor: Govt reposes faith in IAS as economists Raghuram Rajan, Urjit Patel went overboard with ‘autonomy’

Shaktikanta Das, newly appointed governor of RBI. Image courtesy Twitter

Between 1947 and 2013, only four of the RBI’s 20 governors were economists. The rest were from the Indian Civil Service (ICS), the Indian Administrative Service (IAS) and from within the ranks of the RBI. With the appointment of former Union finance secretary Shaktikanta Das as the RBI governor the IAS have reclaimed a job that they allowed economists to grab. While both YV Reddy and D Subba Rao had doctoral degrees and proved their metal as central bankers, the IAS owned them as their own.

It should be recalled that the decision to appoint Raghuram Rajan as the governor was taken by two economist-administrators – Manmohan Singh and Montek Singh Ahluwalia. Before that, the last economist-governor, C Rangarajan, was appointed by the economist finance minister Manmohan Singh. Prime minister Narasimha Rao allowed his finance minister to name the RBI governor. The decision to appoint Patel appears to have been that of the prime minister. If the Gujarati prime minister Morarji Desai appointed IG Patel as governor, another Gujarati prime minister appointed another Patel to the central bank.

The IAS may well have been uncomfortable with both. Both Singh and Rangarajan, the two economist governors before Rajan, learnt to deal with the civil service though all of them, including IG Patel and Bimal Jalan, have their tales of dealing with the IAS fraternity. The problem with both Rajan and Urjit seems to have been that they took their ‘autonomous’ status a bit too seriously. Rajan at least maintained lines of communication with the finance minister and other policymakers in New Delhi. Urjit seems to have cut himself off, opting to deal only with the prime minister. The empire struck back.

I was among the few who wholeheartedly welcomed Urjit’s appointment in 2016 and that for a purely subjective reason. I have known him from the time he first arrived in India in 1992 as the deputy resident representative of the International Monetary Fund. Interestingly, most professional economists in India and within the Indian diaspora in the US, who are now lamenting his exit, raised eyebrows at that time whispering to each other, “Modi has appointed an Ambani man.” Urjit had a brief stint with Reliance Industries. I had to remind those who said this to me that Urjit was appointed deputy governor by Prime Minister Manmohan Singh and his elevation was nothing out of the way.

If today I do not lament Urjit’s exit it is because he has brought his isolation from New Delhi upon himself. By insisting that he would deal only with the prime minister and, at best, the finance minister, he alienated the IAS, other economists in the government and the influential financial media. These are all constituencies that successful governors carefully nurtured.

The last straw for New Delhi was the claim of India’s globalised elite and western financial firms and institutions that a Rajan exit or an Urjit exit would bring the financial markets down and the rupee would come tumbling after. None of those apocalyptic scenarios materialised with both exits.

Going forward, Das can be expected to restore stability to the government-RBI relationship and function in a quiet, professional manner. He is a very likeable person who distinguished himself as a competent finance ministry official. The IAS and the political leadership will back him to the hilt. If deputy governor Viral Acharya continues in his job, Das will have access to the professional views of an economist vetted by the West and given the stamp of approval by economists who look down upon the IAS. If Acharya chooses to call it a day, the finance ministry has a new chief economic advisor in the waiting room.

In the end, why did Urjit fail to fall in line and what prompted him to go? One will have to wait for his book, now that so many government-economists have set the trend of writing their memoirs. At least one key reason could well be Urjit’s “ideological monetarism”. The last “ideologically-committed monetarist” to be central bank governor was Rangarajan. But Rangarajan worked under a Keynesian finance minister and was willing to be accommodative. Urjit took his monetarism to the extreme. No political party in any democracy can afford the fiscal conservatism of a monetarist in the run-up to an election. Urjit had the space to be accommodative, he chose not to be. It would have gone against his monetarist dharma.

The author is a political commentator and policy analyst.

Updated Date: Dec 12, 2018 12:38:48 IST