Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

Opinion | Das, the banker vs Das, the bureaucrat

The moot point here is whether Shaktikanta Das has been handed a to-do list by his boss, the finance minister, and whether he will capitulate

The appointment of Shaktikanta Das as the 25th governor of Reserve Bank of India (RBI) is both a symbol of continuity and a break from tradition. Das is the latest addition to a long line of career bureaucrats who have been appointed as central bank governors—R.N. Malhotra, S. Venkitaramanan, Y.V. Reddy and D. Subbarao, among others. This should ideally make the IAS lobby happy since it has regained a critical post that looked like slipping from its iron-like grip over important offices in the land, especially after the appointment of Raghuram Rajan and Urjit Patel as governors. In that sense, Das brings a sense of continuity to the corner office at Mint Street. A career bureaucrat is expected to provide stability and predictability to the central bank’s operations, apart from bringing an innate understanding of the government’s fiscal needs to the table and fashioning monetary policy around it without stirring up a hornet’s nest. In India, convention is fiscal leads, and monetary policy follows. Bureaucrats get this instinctively, having spent a large part of their career executing policies forged by politicians. There is another aspect to the continuity hypothesis: Das is likely to allow inflation-targeting to continue, having overseen its introduction.

The choice of Das as RBI governor also represents a departure from accepted convention—at least, the practice that has been followed over the past 27 years since the beginning of economic reforms. Ever since C. Rangarajan was appointed as governor, the RBI corner office has either been occupied by a professional economist, or a career bureaucrat who had a background in theoretical economics. For example, Subbarao had a degree in physics, but later completed his doctorate in economics. Ditto for Raghuram Rajan, who had earned a PhD in economics after treading the familiar IIT-IIM route. In contrast, according to Wikipedia, Das has a master’s degree in history and has completed an advanced financial management course from IIM-Bangalore. What works in his favour is a long career in the finance ministry and the attendant ringside view of the economy and economic administration. Markets and strategists will be watching closely whether experience will be enough to make up for the deficit in technical expertise, which RBI governors are expected to marshal while designing monetary policy. Monetary policy is the stomping ground of the arcane, characterized by its use of complex mathematical models and complicated by a tenuous and not-so-well-understood relationship with the real economy.

The contrasts do not end there. There is one unavoidable question that needs answering: How will Das, the central banker, balance out the other persona, Das, the bureaucrat? Shaktikanta Das is an integral member of the “steel framework", shorthand for the IAS cadre’s invincibility and indispensability in the running and administration of India. The training entails engaging with politicians and their whims, often in prevarication, but also constructively. At senior levels, most bureaucrats do end up executing the political executive’s strategy. Therefore, the moot point here is whether Das has been handed a to-do list by his boss, the finance minister, and whether he will capitulate. This is where Das, the central banker, is supposed to kick in. Traditionally, career bureaucrats have been known to rise above their allegiance to the finance ministry, and work hard to protect the RBI’s operational autonomy. Historically, many RBI governors have often locked horns with finance secretaries over differences in perception about monetary policy, especially interest rates, despite both being members of the IAS club. Das will have to work this schism carefully, and what he does with it, will eventually define how historians remember him.

The 25th RBI governor displayed his individuality on his first day at work, by quickly upending his predecessor’s style of working. He held a media briefing and communicated his immediate concerns to journalists. He is meeting heads of public sector banks on Thursday, his second day at work. He promises to keep his doors open and engage with all stakeholders, including indulging in conversations on increasing systemic liquidity, which Urjit Patel had steadfastly claimed was enough to feed the economy’s credit appetite. He promises to hold the contentious board meeting on 14 December, which is expected to discuss the controversial issues that lit the current bonfire: RBI governance, transfer of RBI reserves to the government, systemic liquidity, including a window for distressed finance companies, relaxation of the 12 February circular which tightened the non-performing loan norms, and allowing sequestered banks to lend again. Some of these demands, such as the transfer of RBI reserves, defy common economic sense, and enfeeble India’s monetary economy to feed a ravenous fiscal side.

In seeking to balance his role as a central banker with his previous responsibilities, Das should leverage the depth and breadth of the RBI’s technical expertise. As the Indian economy gets buffeted by global volatility and by politically motivated demands at home as elections draw near, he will need to increasingly rely on it for sage advice.

Will Das leverage the depth and breadth of the central bank's technical expertise? Tell us at