Seen as an inflation hawk, Shaktikanta Das navigated India deftly through the Covid-19 crisis. But he has demitted office at a time when economy is slowing and a 4 per cent inflation target remains an unfinished agenda.
Shaktikanta Das’s eventful tenure as the 25th Governor of the Reserve Bank of India (RBI) ended this month. Seen as an inflation hawk, Das was the second longest serving central bank chief in the country who navigated India deftly through the Covid-19 crisis. He is succeeded by Sanjay Malhotra, another fine bureaucrat with a long list of achievements. The latter’s job now is not only to control inflation but to also to lift the slowing economy.
Das, a career bureaucrat, took the reins from Urjit Patel in 2018 as the 25th governor of RBI amid apprehensions on account of his non-economy background. He will be remembered for his work in the Covid-19 period and the way he managed economy and inflation, is laudable. His tenure also coincides with two geo-political conflicts– first the Russia-Ukraine tussle that unleashed inflation globally, and then the Israel-Palestine clash. Both conflicts are still ongoing.
Das’ role in strengthening the banking sector has been immense, especially the public sector banks which have cleaned their books and are now in a better state. The RBI’s prompt action on Yes Bank averted another crisis on the heels of IL&FS default.
He is also credited for expanding the foreign exchange reserves. According to a media report, forex coffers swelled by USD 311 billion versus USD 200 billion growth achieved during the tenure of the past five governors. In 2024, India’s reserves saw a net increase of USD 68 billion as on October 11, making the country as the second-largest accumulator of foreign reserves among major reserve-holding nations and behind only China.
Under his watch, the digital payment ecosystem flourished and one of his biggest contributions is the 24-hours payments facility.
Das has been among the best RBI governors and he received an A+ grade in the Central Bank Report Cards 2024 for the second consecutive year. The award is presented by Global Finance in Washington DC. Grades are assigned on a scale of A+ to F and the evaluation is done on the basis success in key areas like inflation control, economic growth targets, currency stability, and interest rate management.
He was earlier a part of the 15th Finance Commission and India’s Sherpa to the G20.
The 4 per cent inflation target of the RBI remains an unfinished agenda and it will be interesting to see if the RBI under the new governor will push for growth or prioritise price stability.
Out of the six members in the Monetary Policy Committee (MPC), two were in favour of the rate cut in the December MPC while the rest were against it.
The buzz however remains strong on the likelihood of a rate cut in February when the monetary policy committee meets next.
Malhotra, who was a revenue secretary in the Ministry of Finance prior to taking up this job, is known for his works on tax simplification and widening the tax payer base.
A balancing act
While the RBI’s mandate is price stability, his appointment as the RBI chief comes with an expectation to balance the monetary and fiscal sides.
Two of the government’s tallest ministers have advocated for cutting of interest rates. Finance Minister Nirmala Sitharaman has shown her displeasure towards the high-rate regime, arguing that it has increased the cost of government borrowing. Meanwhile, Minister of Commerce & Industry Piyush Goyal went on to call the basis of considering food inflation when setting interest rate as “flawed”.
India reported the July-September quarter GDP at 5.4 per cent which was a seven-quarter low. It was down by 270 bps over 8.1 per cent reported in the corresponding quarter of the last financial year.
Consumption slowdown, weak corporate earnings and lower government capital expenditure (because of election) together led to the GDP fall in the last quarter.
The RBI has also lowered GDP forecast for the 2024-25 financial year to 6.6 per cent from 7.2 per cent, earlier and this is raising alarm bells. There is a fear that the Q2 slowdown could not be a one-off incident.
The RBI has a big task at its hand and the balancing act needs a deft touch.
Managing inflation and economy appears tougher now with Donald Trump taking over the US Presidency in January. There is a palpable fear that a tariff war could start once he assumes office leading to higher inflation scenario and undoing what has been achieved so far. He is also known for his stance on migration and we could see work visas being extended to professionals from other countries, being cut.
The US Federal Reserve’s hawkish commentary reflects that fear. Chair Jerome Powell said that its target of 2 per cent inflation is unlikely to be achieved in 2025. There will be a shallower rate cut of 50 bps against an earlier expectation of one percentage point.
There is a growing curiosity on not just the rate cut but also new Governor’s take on food inflation.
