Mumbai: The Planning Commission’s deputy chairman, Montek Singh Ahluwalia, seems to be emerging as the dark horse for the Reserve Bank of India (RBI) governor’s post, which falls vacant in September when Yaga Venugopal Reddy’s term comes to an end.
Reddy, a 1964 batch Indian Administrative Service (IAS) officer, is one of the few RBI governors who had been given a five-year term from the start.
Reddy’s term comes to an end only on 5 September, and the government hasn’t yet initiated the formal process of identifying his successor. But, given the prestige and importance of the job, there has been growing attention to names of three potential contenders: Rakesh Mohan, an RBI deputy governor; finance secretary Duvvuri Subba Rao; and Adarsh Kishore, an executive director at the International Monetary Fund.
Plan panel deputy chairman Montek Singh Ahluwalia (Photo by: Ramesh Pathania/Mint)
But Ahluwalia’s name has strongly surfaced this week, say two separate people in New Delhi, including one from the finance ministry.
Given the sensitivities involved as well as potential twists and turns in any search of this nature, neither wanted to be identified.
According to this finance ministry person, the Congress party’s defeat in Karnataka’s assembly elections to the Bharatiya Janata Party, or BJP, could spell further trouble for the ruling United Progressive Alliance (UPA)-led government at the Centre.
That’s because if the BJP-led National Democratic Alliance does come back to power—elections are less than a year away —the high-profile Ahluwalia, a close confidant of Prime Minister Manmohan Singh, will, in all likelihood, be quickly shunted out of the Planning Commission as he is essentially a political appointee.
Meanwhile, a change in government doesn’t automatically lead to a change of the governor of India’s central bank.
(From left) India’s finance secretary D. Subba Rao, RBI deputy governor Rakesh Mohan and current RBI governor Y.V. Reddy (Photos by: PTI, Ashesh Shah/Mint and Abhijit Bhatlekar/Mint)
According to a third official, who also didn’t want to be named, Ahluwalia’s name came up for discussion last week in the cabinet secretariat.
One of the issues that was discussed was whether Ahluwalia’s age—he is 64—will work against him.
Normally, the RBI governor’s appointment is decided between the finance minister and the Prime Minister. According to this official, the search has seemingly already narrowed to Mohan and Ahluwalia with Prime Minister Singh holding the crucial vote.
Ahluwalia is extremely close to Singh. Among one of the key Indian officials associated with the first wave of economic reforms, Ahluwalia has served as Singh’s secretary in the department of economic affairs, ministry of finance, and later as the finance secretary.
A Mint reporter was told that Ahluwalia wasn’t available for comment on Tuesday night.
While it is not unusual for a RBI governor to get an extension—Reddy’s predecessors Bimal Jalan and Chakravarty Rangarajan got them—Reddy has made it clear that he would not like to continue after his current term expires.
The biggest challenge for any new incumbent will be containing inflation, which has been ruling at a three-and-a-half year high of 7.8%, much above the RBI’s comfort level of 5%. The pace of growth is also slowing, following tightening of the monetary policy through a series of hikes of banks’ cash reserve ratio, or the money that banks are required to keep with RBI.
Another challenge before the new governor will be opening up of the financial sector. Reddy had earlier promised to review the central bank’s policy vis-à-vis allowing foreign banks a greater play in India in April 2009.
Irrespective of who gets the job, Reddy will leave some big shoes to fill after he retires.
A deputy to Jalan as well as Rangarajan, Reddy was involved in managing money and finance even before he shifted to Mumbai’s Mint Road, where RBI is headquartered, in 1996 as a deputy governor.
In the past four-and-a-half years, despite various critics, Reddy has been widely recognized as having ensured financial stability that has prevented the Indian banking system from catching the subprime malaise that has played havoc in global markets. Analysts credit him with ensuring adequate flow of bank credit at reasonable interest rate to support the world’s second fastest growing economy and, until recently, managing India’s inflation rate well.
Articulate and suave and with a penchant for niftily avo-iding controversies, Oxford-educated Ahluwalia was critical in managing consensus at the bureaucratic level in pushing through key policy changes after the reforms programme was initiated in 1991 by then finance minister Singh.
Mohan, the first deputy governor born after independence, came to RBI in late 2002 but, before finishing his three-year term, moved to North Block as secretary of economic affairs, only to come back to the central bank after eight months.
His familiarity with RBI and his reputation as a good economist were two key factors in his favour, at least until Ahluwalia’s name cropped up over the weekend.
K.P. Narayana Kumar in New Delhi contributed to this story.