Home / Politics / Policy /  Raghuram Rajan’s likely replacements at RBI

Mumbai: Raghuram Rajan’s decision to leave the Reserve Bank of India at the end of his three-year tenure on 4 September has left the market guessing on who are the candidates to replace him. To be sure, speculation of possible replacements had picked up even before Rajan’s surprise letter on Saturday. Over the last month or so, as Bharatiya Janata Party leader Subramanian Swamy took aim at Rajan, some names of likely candidates have started to do the rounds.

Here are some of the options that the government may consider as it searches for the 24th governor of the RBI.

Arvind Subramanian: Currently the chief economic advisor to the government, Subramanian is one option for the governor’s post. As Rajan, an economist of international standing, exits, the government may want to bring in someone who also has a global profile. Incidentally, Subramanian is a former colleague of Rajan’s. The two worked together at the IMF and co-authored a paper on whether aid by rich nations actually helps developing economies. Like Rajan, Subramanian is also an alumnus of the Indian Institute of Management, Ahmedabad. He went on to complete his higher education at Oxford University.

Subramanian and Rajan’s views have different on recent issues of import. Most notably, last year when Rajan and RBI continued to keep a watch on inflation, Subramanian argued that the RBI should be more worried about deflation due to the persistently negative run of wholesale inflation in the economy until recently.

Arundhati Bhattacharya:Currently the chairman of State Bank of India, Bhattacharya’s term at the helm of the country’s largest lender ends in October, soon after Rajan’s term at RBI comes to a close. It is believed that Bhattacharya’s no-nonsense approach in dealing with errant promoters and in cleaning up the bank’s balancesheet, has earned her brownie points with yet government. A career banker, Bhattacharya may make a good candidate against the backdrop of the bad loan crisis in the banking sector.

The trouble with appointing Bhattacharya as the head of the central bank is that there is no precedent in recent times of a banker being appointed as the RBI governor. While one of the four RBI deputy governor’s is always a senior banker, the central bank chief has typically been someone who had an understanding of the wider economy.

Urjit Patel: The government also has the option to elevate deputy governor Urjit Patel to the position of governor. The government may consider this if it feels the need to ensure continuity at the central bank at a time when a number of key changes are underway. Patel, who chaired the committee on a new monetary policy framework, has overseen the RBI’s transition to a inflation targeting central bank. Patel has also been driving the central bank’s liquidity policy which, until recently, was at odds with the market. The RBI insisted on maintaining a liquidity deficit, which many believe is the reason behind the poor transmission of interest rate cuts announced by the RBI.

Apart from these names, there may be others that the RBI may consider. On Saturday, Reuters, citing a senior government officisl, reported that there are seven candidates on a long list to replace Rajan. The candidates are Vijay Kelkar, Rakesh Mohan, Ashok Lahiri, Urjit Patel, Arundhati Bhattacharya, Subir Gokarn and Ashok Chawla, Reuters reported. Some of these candidates are however above the age limit of 62 years for a governor.

Of this list, Rakesh Mohan and Subir Gokarn have both served as deputy governors of the RBI in the past. Subir Gokarn was the deputy governor in charge of monetary policy before Urjit Patel took over in January 2013. Gokarn is currently executive director at the International Monetary Fund. Mohan, who has served two terms as the RBI deputy governor, however is unlikely as he is above the age limit. Kelkar is also well above the age limit.

Private forecasters have also been putting out lists of options for replacing Rajan. In a research note on 13 June, Ambit Capital said that likely candidates may include Urjit Patel, KV Kamath (former CEO of ICICI Bank), Arundhati Bhattacharya, Arvind Subramanian, Arvind Panagariya (vice chairman of Niti Aayog and Shaktikanta Das, secretary in the government’s department of economic affairs. “In terms of the alternatives that can be considered, we highlight that Urjit Patel appears to be the best option...." said Ambit Capital.

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