The day the former RBI governor, Dr. Urjit Patel, put in his papers it was expected that the markets would react negatively. Interestingly, on a day when the BJP fared poorly and the RBI saw a big change, the markets actually reacted positively. There is an eminent logic behind this. While we will leave the political debate aside for the time being, the shift at the RBI has been seen as a positive move. Here is why the markets are cheering the entry of Shaktikanta Das at the helm of RBI.
No economist; so what?
A senior economist in the Modi advisory team gave an interesting twist to the appointment of Shaktikanta Das. He opined that those who do not learn from history are condemned to repeat it. Hence, Das with his background in history would be eminently suited to the top job at the RBI. While the argument may be a tad rich and a little too obsequious, there is a larger reason why the markets are cheering Das. As a bureaucrat, Das has an in-depth understanding of the ropes of the government machinery. He is best positioned to move the wheels to get things done. Academicians at the helm of the RBI may bring a lot of technical finesse to the job but navigating the Indian system is a challenge in itself. That is where Das is likely to score over his predecessors. Also, as a bureaucrat, Das will ensure that frictions with the ministry are kept at the minimum.
A better communicator
One of the big expectations from the RBI governor is that of an effective and ready communicator. That is where the markets were having a problem with Dr. Urjit Patel. Things were just too shrouded in secrecy and the governor hardly offered any guidance on the trajectory of his thought process. A more transparent and communicative approach will work best. More so, considering that elections are round the corner and that means the pressure on the RBI will all the more. The role of the central bank is changing the world over and independence in the strict sense of the term is becoming increasingly elusive. In delicate roles like the RBI governor, there is a vast gap between resistance and resilience. Das has shown a lot more resilience in the past and that will stand him in good stead.
Smooth tenure likely
What the markets are really betting on is that Das could mark a smooth relationship between the RBI and the Finance Ministry. That has not been seen since Dr. Reddy demitted office in 2007. A lot of financial decisions can become smoother if the RBI and the finance ministry are in sync. Good governance dictates that in any stiff debate between the two, the ministry must prevail. That is the way it is the world over. Das would be best suited to manage such contradictions! ©
