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Rbi Governor Shaktikanta Das gets an extended term for a job well done

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Rbi Governor Shaktikanta Das gets an extended term for a job well done

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The Governor of the Reserve Bank of India (RBI), Shaktikanta Das, was expected to get an extension, but getting it for three years is well-deserved and a pleasant surprise. Conventionally, RBI governors are appointed for five years, and the government has the option to review the appointment after three years.

The three-year extension for Das, rather than two, may well be to ensure that there is a stable and experienced boss in RBI when the central government goes to the polls in the summer of 2024. Had Das’s term ended after two years in December 2023? , the new governor will have just three months when the government becomes lame, a situation that is not welcome given the uncertainty about the economy and the financial sector seems to continue.

The additional year for Das is also a recognition of the excellent overall work he has done in keeping the economy in one of its worst phases of late. Governor Das joined RBI at a time when RBI-government relations were at an all-time low. The previous governor, Urjit Patel, had resigned in anger after the government gave him an order under section 7 of the RBI Act, a provision that had never been used until now.

Das’s first and foremost achievement was smoothing out a thorny relationship.

The new governor started his entries with a rate cut, leading many skeptics to believe that he could be appeasing Delhi. The subsequent slowdown in both inflation and growth in early 2019 demonstrated that Das perceived that the economic winds were correct.

If that was the luck of the beginners, the subsequent handling of the pandemic was not luck, but a mixture of intelligence, leadership and courage. The proactive rate cuts and generous liquidity pumping in March 2020 demonstrated his excellent understanding of the situation, courage and resolve in the face of an unfathomable problem.

The waiver of interest for almost two quarters, the selective release of liquidity, the engagement of KV Kamath to identify and solve the stressed sectors, the planning path for recognition and provisioning were all excellent decisions. The fact that Das could lead RBI to take such bold yet measured steps amid the storm speaks to his sagacity.

A bright feather in Das’s cap is the way he ran the Monetary Policy Committee (MPC). Setting the buyback rate is the prerogative of MPCs. Overriding the buyback rate as an operating rate, making the reverse buyback operational, and getting the MPC to bless this decision is one of Das’s outstanding successes. It is not enough to have the correct policy. It is equally important to bring institutions and people with you.

“Das’s greatest quality is his ability to listen,” said Professor Ananth Narayan from SPJIMR. His constant consultations with various groups: economists, treasury chiefs, bankers, industrialists reflect his willingness to be advised while preserving the prerogative to decide.

Aside from the pandemic and the challenges in the economy, there was a worryingly lengthy court battle demanding that banks should not charge interest during the moratorium period. The solution of asking the government to take over a token amount of the waived interest was brilliant. It set the precedent that banks are custodians of depositors’ money and depositors cannot be asked to bear the burden of borrowers.

“His greatest achievement is having managed the government’s huge borrowing program in 2020 and 2021,” said HR Khan, a former RBI deputy governor who had headed the RBI’s Internal Debt Management Cell many years ago.

The groundbreaking GSAP or Government Securities Acquisition Plan, the massive purchase of dollars and bonds to provide liquidity to a dying economy and then skillfully manage that liquidity speaks to Das’s understanding of the markets and his ability to get the best out of RBI.

His statement, “The yield curve is a public good,” was a bold way to cut rates to help an anemic economy.

Governor Das faced a fair amount of criticism for his generous dividends to the government and the games RBI had to play in the forward market to get that dividend. The relationship between the government and the RBI is inherently conflictual and they both look at different time frames.

But Governor Das chose his battles. He may have given up on dividends, but he didn’t back down on the dollar sovereign bond idea. He killed him, but silently, out of the glare of public attention.

The handling of sovereign bond issuance is the true mark of a statesman, said a former RBI veteran, who did not want to be named. It shows that Das’s priority is to get it right and not be seen as the hero who did it.

Challenges ahead

The next three years will have its fair share of challenges. Will the RBI do so at the time of withdrawal of liquidity? Will you stop being accommodative at the right time? Will it prevent the country from slipping back into high inflation? Can it help the economy to grow again?

And there are challenges beyond monetary policy. Delhi may well be in favor of granting banking licenses to corporate houses. Will RBI under Das be able to weather the pressure and convince Delhi of its position?

Foam in financial markets, cryptocurrencies, and harnessing financial technology for the common good without hurting legacy banks are formidable challenges. Many of these may require international and transnational agreements, which Das, as a former government Sherpa, may be in a good position to negotiate.

As HR Khan put it, “He has proven his worth as a general in times of war; in the next three years he will have to prove himself as a general in peacetime. “

(Edited by : Yashi gupta)

First published: IST

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Rbi Governor Shaktikanta Das gets an extended term for a job well done

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