Shaktikanta Das's term ends amid rising inflation, GDP slowdown

Union ministers Nirmala Sitharaman (finance) and Piyush Goyal (commerce and industry) had called for rate cuts after GDP growth slowed to 5.4% in the July-September quarter. But Das stuck to the RBI’s inflation targeting mandate and held the repo rate steady on 6 December following his last meeting with the central bank’s monetary policy committee (MPC).

Das, one of RBI’s longest-serving governors, took charge in 2019 following his predecessor Urijit Patel’s sudden departure.

One of his first actions was to set up a committee under former RBI governor Bimal Jalan to review the central bank’s economic capital framework, which includes the size of capital reserves that RBI should hold. Following the recommendations of the committee, the RBI has been transferring its surplus to the Centre each year.

Das, who joined RBI from the department of economic affairs at the Centre, played a crucial role in handling the economic impact from the covid-19 pandemic. Under his leadership, the MPC cut policy rates to a historic low of 4% and infused liquidity into the system through direct and indirect measures to help the economy hit by lockdowns.

While the MPC prioritised growth over inflation during the pandemic, it changed gears to focus on inflation after the Ukraine war erupted in 2022.

For at least a year thereafter, RBI hiked rates by 250 basis points, which brought inflation down from 7.8% to 4.25%. However, food and fuel price shocks kept inflation above MPC’s medium term target of 4%, forcing the rate-setting panel to pause for nearly 11 consecutive policies.

Also read | Sanjay Malhotra to command last leg of RBI’s war on inflation

The long period of maintaining status quo hit home when the second quarter GDP growth came in at a seven-quarter low. Das had chosen to ignore the warnings of the two former MPC members—Ashima Goyal and Jayant Varma—who had repeatedly said that extended period of pause could hurt growth.

Das earned the government's appreciation for his deft handling of the banking system, which saw multiple bank failures during his tenure. He also “smelled the crisis" in the unsecured loan portfolio even before it started emerging on the books of banks and non-banks. Many applaud him for taking supervisory actions to improve compliance and governance in banks, non-banks and fintech firms.

While much of Das’s tenure was marked by actions that earned him acclaim, challenges arose in his second term. 

For instance, RBI had to write to the Centre in 2022 explaining why the inflation target was missed. Before that, he had sought an exemption from this rule. 

Then, RBI’s draft regulations on infrastructure project financing and its handling of non-bank lenders didn’t go down well.

“Tight monetary policy, arbitrary regulations may have affected credit delivery," said Abheek Barua, former economist, HDFC Bank. “While Das managed to get core inflation down, his fretting over food inflation is seen as a misstep. He could have pushed for an easier policy regime given the credibility he had built for himself."

Also read | RBI is ready to defend financial stability: Das

Similarly, RBI’s managing of foreign exchange has also been criticised for keeping the rupee in a tight range for far too long by intervening in the market.

Rakesh Mohan, former deputy governor of RBI, said that Das restored a harmonious relationship between RBI and the government after more than a decade, and also kept the credibility of RBI intact by not coming under pressure to cut rates. 

“That said, RBI's forex reserve management could have been more flexible and taken signals from the market. RBI needs to keep an eye on real exchange rate and do it in such a way that it remains competitive. But it has been far too stable at the nominal level," Mohan said.

Das’s term as the second-longest serving governor has been marked by many achievements including economic growth of over 7% in the past four years of his six-year term, ensuring a stable banking system, and a strong push for digital payments including the introduction of a central bank digital currency.

Mint Street will also surely miss his inspirational quotes on Gandhi, animal analogies and his penchant for cricket.

And read | How Shaktikanta Das is fixing the problem of wayward bank interest rates