The Indian government just appointed the man who oversaw one of its most controversial economic policies as the new head of the central bank

(Image source- IANS)

• The Indian cabinet has appointed Shaktikanta Das, a member of the finance commission and former secretary of the economic affairs, as the new governor of the Reserve Bank of India.
  
• Das’s appointment has been cleared for a three-year tenure by the Prime Minister’s Cabinet. He was tasked with overseeing and implementing the government’s demonetisation initiative in November 2016.
  
• By appointing a loyalist, the Indian government has shown that it intends to continue to have a say in the operation of the central bank.
  

It had barely been a day since the resignation of Urjit Patel, the former governor of the Reserve Bank of India (RBI), before the Indian government appointed his replacement. Shaktikanta Das, a member of the finance commission and former secretary of the economic affairs, was named as the new governor on Tuesday evening.

The swiftness of the move is likely due to the fact that Das was said to be in the running after Patel’s predecessor, Raghuram Rajan, left the job in September 2016.

A favoured pick of the Modi administration, Das announced his new position on Twitter on Wednesday. His appointment has been cleared for a three-year tenure by the Prime Minister’s Cabinet. It comes a few days before the RBI’s board meeting on 14 December.



The decision indicates where the central government stands on the issue of the RBI’s independence when it comes to decision making. By appointing a loyalist, it intends to continue to have a huge say in the operation of the central bank. It’s not unreasonable to expect a loosening of the Prompt Corrective Action (PCA) framework or bigger handouts to small businesses and greater liquidity support shadow lenders in the near term.

Das, an IAS officer from the batch of 1980, has a significant track record when it comes to working with the central bank and his appointment will likely appease investors hoping for policy continuity. In contrast, ratings agencies like Moody’s that prioritise central bank independence might be wary as Das is expected to a facilitate a very direct line of communication between the RBI and central government.

In addition to shepherding the Insolvency and Bankruptcy Code to fruition, Das had a huge role in establishing the six-member Monetary Policy Committee, which sets interest rates, and making the central bank move towards an inflation-targeting strategy.

However, Das is also the man who was tasked with overseeing and implementing the government’s demonetisation initiative in November 2016, as well as the Goods and Services Tax (GST) the following year. In fact, he even suggested rather controversially that people be inked to prevent them from exchanging notes multiple times and has routinely undermined the negative impacts of demonetisation.

While the success of the GST so far could still warrant a debate, the demonetisation initiative has been universally derided.

Urjit Patel was critical of the Modi administration’s decision to take 86% of the country’s currency by value out of circulation. Raghuram Rajan echoed similar sentiments. The move led to unnecessary struggles for small businesses and workers in the informal sector. It also hit rural demand and disrupted supply chains.


SEE ALSO:

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Reserve Bank of India governor Urjit Patel resigns citing ‘personal reasons’

One and a half years after demonetisation, Indians are hoarding cash again