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Sanjay Malhotra to command last leg of RBI’s war on inflation
Summary
- Malhotra becomes the latest finance ministry official to steer RBI, after outgoing governor Das, as well as previous governors D. Subbarao, Y.V. Reddy and Bimal Jalan.
The war on inflation has a new general leading the charge, as India's top revenue officer Sanjay Malhotra moves from North Block to Mint Road. On Monday, the Union cabinet's appointments committee named the 1990 batch IAS officer to lead the Reserve Bank of India, a day before governor Shaktikanta Das leaves at the end of six years at its helm.
Malhotra becomes the latest finance ministry official to steer RBI, after outgoing governor Das, as well as previous governors D. Subbarao, Y.V. Reddy and Bimal Jalan. The officials come with a deep understanding of fiscal matters and the pressures on the government, even as they take the reins of India's inflation-targeting central bank.
Malhotra, who currently oversees the Centre's direct and indirect tax administration, will serve for three years beginning Tuesday, the appointments committee comprising Prime Minister Narendra Modi and home minister Amit Shah said. The Rajasthan cadre officer has previously led the department of financial services and worked across power, mining and information technology.
Like Das, Malhotra will have to deal with stubborn food prices that have pushed headline inflation beyond the monetary policy committee's (MPC) flexible target of 2-6%. In October, inflation as measured by the consumer price index (CPI) was 6.21%, higher than 5.49% in September.
The committee now expects retail inflation to soften to 4% only by the September quarter of FY26. Meanwhile, the rupee trades near all-time lows, amid strong demand for the dollar and portfolio outflows.
At his final policy statement on Friday, Das said that RBI’s anti-inflationary monetary policy stance has been a crucial factor in bringing about a significant disinflation. “Going forward, as food price shocks wane, headline inflation is likely to ease and realign with the target as per our projections," he said, adding that at present, it is necessary to wait for and monitor incoming data for confirmation of the decline in inflation.
A Reuters report quoting economists at Capital Economics said they expected a 25 basis point cut in India's repo rate at Malhotra's first MPC meeting in February, compared to April under Das's leadership.
The external environment remains challenging as well. US President-elect Donald Trump has taken a tough stance on imports, promising significant tariffs on Chinese goods and a loose fiscal policy. In a recent interview with the Financial Times, Das said “protectionism and tariffs", as well as “geo-economic fragmentation", supply chain bottlenecks and surging commodity prices due to conflict are the “biggest potential challenges" for India.
Malhotra’s appointment comes just months after the government appointed three new members to MPC. With new external members, a new governor, and a new deputy governor who is yet to be appointed, the committee's February meeting will be keenly watched.
Also read | Souring credit card loans, and how Shaktikanta Das saw it coming
The six-member MPC has three external candidates with four-year terms. In October, the government appointed Ram Singh, director, Delhi School of Economics, University of Delhi; Saugata Bhattacharya, former economist, Axis Bank; and Nagesh Kumar, director and chief executive, Institute for Studies in Industrial Development, New Delhi to the committee. The internal members include RBI executive director Rajiv Ranjan, and deputy governor Michael Debabrata Patra, apart from the governor.
Madhavi Arora, chief economist at Emkay Global Financial Services said the new governor and MPC members will also have different policy challenges and macro and global landscape in 2025, as against what Das and the erstwhile MPC faced at the beginning of 2024.
The policy trade-offs are getting acute, said Arora, pointing to the entrenched state of India's stagflation; the small window for conventional rate cuts as global dynamics turn more fluid; mounting forex pressures and the increasing cost of forex intervention.
Under Malhotra’s watch as revenue secretary from year 2022, tax authorities rolled out plans to simplify income tax, reduce litigation, rationalize customs tariffs, eliminate fake GST registrations, ensure tax certainty and enhance voluntary tax compliance. In his current role, he has frequently advocated a finely balanced approach to policy making and administration.
The top revenue officer has, on multiple occasions, told the tax administration to focus on real issues of tax evasion, rather than issues prone to interpretation. Last week, he cautioned field officials to place the economy’s interest before that of revenue, comparing high-pitched tax assessments to killing the goose that lays golden eggs.
Also read | Mind economy's interest before Revenue's: Sanjay Malhotra to tax officials
“CBIC has been advocating this approach, and I would take this opportunity to (urge) all the members of customs and DRI present here to keep the interest of the economy before the interest of the revenue," Mint reported on 5 December.
After the full-year budget for FY25 was presented, Malhotra told businesses at an interaction that tariff protection for domestic producers cannot go on forever, and that the industry has to improve productivity and become competitive so that consumers benefit, Mint reported on 25 July.
Earlier too, he had advised officials to balance the need for enforcing compliance with the need to ensure ease of doing business in the country.
Malhotra was the CMD of state-run REC Ltd from November 2020 to February 2022, leading the organization when the country witnessed a power crisis-like situation in October 2021 amid pent-up demand post covid-19 lockdowns. Prior to joining REC, he was posted as additional secretary in the power ministry, and looked after transmission, distribution, reforms and restructuring.
Rhik Kundu and Rituraj Baruah in New Delhi contributed to this story.
