In cricketing parlance, this is a not a dream pitch to bat on. With the inflation rate at a 13-year high, capital flows drying up and the rupee weakening against the dollar, the job of India’s chief money manager is not going to be easy.
But these factors have in no way diminished the aura surrounding the post of governor of the Reserve Bank of India, or RBI, that falls vacant on 6 September when Yaga Venugopal Reddy’s term comes to an end.
Reddy, a 1964-batch Indian Administrative Service, or IAS, officer, and one of very few RBI governors who were given a five-year term from the beginning, has made it clear that he would not like to continue after his current term expires. People in India’s financial circles, however, have started talking about a possible extension for him.
It won’t be a first for a serving governor. In fact, Reddy’s predecessor Bimal Jalan, who served for six years at the helm, received an extension as did Chakravarthi Rangarajan, who was governor before Jalan.
People in the finance ministry who are familiar with the process of appointing the RBI governor say Reddy may be asked to remain in office for an extended period if the government is not able to identify his successor or the process of appointing his successor gets delayed for any reason.
Planning Commission deputy chairman Montek Singh Ahluwalia is a strong contender, but there is a technical hitch the government needs to sort out if it wants him for the job. As deputy chairman of Planning Commission, he enjoys the rank of a cabinet minister while the RBI governor’s post is of the rank of a state minister. So, the government will have to upgrade the rank of RBI governor as otherwise Ahluwalia will be moving down a notch in the hierarchy. This isn’t a difficult task and can be done with a routine approval by the cabinet.
The government has not yet initiated any formal process to identify Reddy’s successor. In fact, there is no formal process for such an appointment. There is no search committee to prepare a list of candidates. The Prime Minister’s Office (PMO) chooses the governor with inputs from the finance ministry and the outgoing governor and, on most occasions, there is no written recommendation. The politicians of the ruling party play an important role in the selection but the corporate houses that normally try to influence the appointment of CEOs of commercial banks do not have a voice here, although they have their preferences. In its 73-year history, only once has a commercial banker been appointed governor, and A. Ghosh held the post for a brief period of three weeks in 1985. By tradition, bureaucrats and economists are considered for this post.
Incidentally, Ahluwalia was the strongest contender for the governor’s post 11 years back when he was the finance secretary, but Jalan pipped him at the post. People familiar with the development say the outgoing governor then had recommended Ahluwalia but that at the last moment, Jalan, then member secretary, Planning Commission, had emerged as a dark horse. The other person in the fray then was Arjun Sengupta, also a member of the Planning Commission.
Jalan moved to Mint Road in November 1997 in the thick of the South-East Asian crisis, when India’s central bank was spending a billion dollars a day to protect the local currency. By the time he was ready to hang up his boots, things were very different. The inflation rate was well below 4%, interest rates were at their historic lows, there was plenty of liquidity in the system and the level of confidence of foreign institutional investors in Indian markets was soaring.
Two bureaucrats were keen to replace Jalan as RBI governor but neither N.K. Singh, then a special secretary at the PMO nor S. Narayan, then finance secretary, could make it and Reddy, who was a deputy to Jalan as well as his predecessor Rangarajan, came back to head RBI, cutting short his stint at the board of International Monetary Fund (IMF) in Washington as India’s executive director.
Jalan favoured Reddy over others and people who know him well say he was not very keen on the idea of a finance secretary moving to Mint Road straight from North Block, the secretariat building on Raisina Hill, that houses the finance ministry, as he thought this would encourage the IAS lobby to consider RBI governor’s post as an automatic career progression. Jalan himself was a finance secretary but there was long gap between his stint at North Block and RBI.
This “Jalan formula”, as it is known in bureaucratic circles, may come in the way of finance secretary Duvvuri Subbarao moving to the central bank although he is a reputed administrator and economist. The other name doing the rounds is that of Adarsh Kishore, an IAS officer of the 1969 batch and a former finance secretary. However, Kishore, now executive director of IMF, is not a serious contender.
That leaves Ahluwalia and Rakesh Mohan. The first deputy governor born after India’s independence in 1947, Mohan came to Mint Road in September 2002 but before finishing his three-year term, he moved back to North Block as secretary, department of economic affairs, only to come back to RBI. The former chief economic adviser to the finance minister, Mohan’s advantage is that he is an insider who knows the organization well. If he is made the governor, he will follow the tradition of Reddy and Rangarajan: both had stints as deputy governor before moving to the corner room. And if Ahluwalia, one of the key Indian officials associated with the first wave of economic reforms, and who is passionate about photography and golf, makes it, he will complete the cycle after 11 years when Jalan won the race.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as the Mumbai bureau chief of Mint. Please email comments to firstname.lastname@example.org