Shaktikanta Das has a job cut out for himself at RBI

The outgoing year marks a watershed in the annals of the country’s apex bank as the Reserve Bank of India (RBI) turned out to be a tussling ground for its governor and the government.

The denouement came when the soft, scholarly and self-effacing twenty-fourth governor of the central bank, Urjit Patel, called it quits on December 10 and the government lost little time in filling the vacancy with a retired career bureaucrat and Member Fifteenth Finance Commission, Shaktikanta Das.

In a written reply to a query, Minister of State for Finance Shiv Pratap Shukla, conceded in the Lok Sabha on December 14 that the “government asked RBI for a review of its Economic Capital Framework (ECF) adopted in 2016… the board has decided to constitute an Expert Committee to examine the ECF, the membership of the terms of reference of which will be jointly determined by the government and the RBI”. 

It needs to be noted that the erstwhile governor Patel stuck to his guns in not yielding an inch in the governing structure and economic policy framework that would translate into more access to the government to RBI’s surplus reserves of Rs 9.3 lakh crore.

This is all the more so when the RBI has the big mandate to keep inflation at four per cent within a band of plus/minus one per cent. So any leeway or access to the surplus funds parked with the banking regulator being extended to the government especially at a time when the nation is going to the mega polls in 2019, is bound to goad it to splurge on goodies and other populist schemes that would only stoke and fuel inflationary fires before long.                

Though other weighty issues such as credit and liquidity being made reasonably available to the real sectors of the economy and at an affordable cost, the central bank is seized of the problems and is taking steps to ensure that credit delivery to the vital sectors is ensured through various ongoing measures it had kept unveiling from time to time. 

RBI data reveals that the banking system’s non-food credit growth, which touched a nadir to 7-8 per cent in the three years to October 2017(when the RBI cracked the whip to cleanse the stable of sore NPAs), returned to double-digit growth between October 2017 to October 2018 at 13 per cent.

The arrival of a bureaucrat to the RBI as its top man is coterminous with the efforts of the BJP-led NDA government to revive the fortunes of the slowing economy. For Shaktikanta Das, who was instrumental in altering the industrial landscape of Tamil Nadu as the Industries Secretary in two spells, his elevation to the corner office of the central bank is bound to be keenly watched by wonks. He had worked in the Finance Ministry at various levels and was representing the government side in framing the inflation-targeting as the supreme remit of the RBI, besides being a vocal support of the controversial demonetization policy of the government.

He has plates full of priority issues that range from RBI governance, transfer of RBI reserves to the government, systemic liquidity encompassing a window for distressed finance companies, relaxation of the February 12 circular, which hardened the norms for non-performing loans to allowing banks that are in the Prompt Corrective Action (PCA) category, to resume lending. 

The first board meeting he presided over on December 14 was shorn of drama/trauma, confined to less than an hour by resolving to examine the issues further, review liquidity, credit delivery and economic situation.

As its next board meeting is in January 2019, Das must perforce have to balance his new avatar as a central banker with his quondam position as one from the other side of the ring, so that he is seen not abandoning the quest of his predecessor bureaucrat-turned RBI governors such as YV Reddy and D Subba Rao, who strove to ensure the autonomy, credibility and independence of the RBI even by demurring with their Finance Ministers in their own unobtrusive ways.

Author is a freelance economic journalist