As RBI Governor, Shaktikanta Das takes on biggest balancing act

His eloquent articulation over demonetisation endeared him to Prime Minister Modi and Finance Minster Jaitley. In fact, neither the finance secretary nor the revenue secretary was visible through those tumultuous days of 2016-17 but Das was omnipresent!

A sizeable number of bureaucrats from North Block (headquarters of the Finance Ministry) have been posted as the RBI Governors. Over the last two decades these included RN Malhotra, S Venkitaramanan, YV Reddy and D Subbarao. These were known for preserving the independence and freedom of Reserve Bank on things concerning monetary policy. The most recent of these relate to Subbarao stubbornly increasing the interest rates for 13 successive quarters to contain inflation. It’s another matter that investments thinned, and the economy slowed down.

Das brings with him an enviable record for his dynamism and yen for industrial growth. In the 1990s, soon after the dawn of the liberal era, Das as Secretary-Industry of Tamil Nadu, sought to make the best use of the new freedom of the states to accelerate industrialisation. I remember his single-minded pursuit in persuading Anand Mahindra and Ford Motors to invest in TN (at that time Mahindra was part of the Ford Mahindra project) and it appeared probable to locate the project around Nashik in Maharashtra. The TN bureaucracy convinced then Chief Minister Jayalalithaa, also liberally supported by the then US Ambassador Frank Wisner, to offer a vast range of concessions and special incentives; it proved to be a game-changer. The pioneering effort was followed quickly by Hyundai Motors and later BMW, Renault-Nissan, Daimler…. setting up large capacities for the manufacture of four-wheelers. The state also attracted handsome investments in two-wheelers and auto components (Das played a significant role in this).

I also credit Das for his focus in developing the area around Ennore Port attracting massive investments. Today Ennore and its environs is among the strongest industrial clusters with investments exceeding Rs 50,000 crore.

Das was put on the bench for a while but his transfer to the Centre helped bring out the best in him. He won appreciation for his dynamism and articulation. I cite an instance of this: at the Economic Editors’ Conference 2016, a journalist of a Tamil newspaper from Chennai was struggling to make his query in English clear. Das intervened and asked him to raise it in Tamil which the former did. Das responded in Tamil and also translated the Q&A for the benefit of all!

At the Reserve Bank of India the tasks are not going to be easy for Das especially after the manner of departure of two of his illustrious economist-predecessors. They were at the helm through difficult times, with the economy slowing down, NPAs of banks at humongous levels, demand for credit from large industries drying up and credit flows to small and medium industries substantially declining. Tackling the profligacy of the UPA II government, especially the resort to huge deficits by Pranab Mukherjee as Finance Minister, resulted in public sector banks being burdened with huge NPAs. The impossible situation needed drastic remedies. Rajan attempted this by drastic measures to deal with mounting NPAs and the compulsion of frequent capitalisation.

Rajan’s successor Urjit Patel had to continue with a tight monetary policy including rigorous regulation of the PSU banks. The corrective actions resulted in half the PSU banks almost totally freezing credit; this severely impacted NBFCs and MSMEs. Swadeshi Jagran Manch’s S Gurumurthy, inducted into the RBI board, is known for his political activism and strong views on fiscal and monetary matters, has reportedly been pressing for relaxing the norms of credit lent for the MSME sector and NBFCs. The Mudra Bank that emerged due to his advocacy has been focusing on the MSME sector. But for few exceptions these sectors have not been covering themselves with glory as revealed by the crash of IL&FS and pervasive sickness of MSME units. Gurumurthy has also been totally blind to the MSME sector and retail trade, enjoying growth, but contributing little to the tax efforts. I belong to this sector and am familiar with the difficulties of making large sections of these businesses adhere to tax compliance.

Das, with his rich experience at the North Block, is aware of the poor state of Centre’s finances. Direct tax collections, though buoyant, is still short of targets. In regard to indirect taxes it is far worse with poor growth, of just around 4.5 per cent, through the current year. Even for the first half of the current year the fiscal deficit was around 95 per cent of the target for the whole year. There were also severe shortfalls in other heads: against Rs 80,000 crore targeted for disinvestment, in the first six months, realisations were just around Rs 9,500 crore.

You’ll now understand the suggestions floated around to reduce the contingency reserve for monetary emergencies from the present 27 per cent to around 13 per cent. Presently RBI reserves amount to around Rs 9.4 lakh crore. In his new avatar, Das has to focus more on securing monetary stability, operating the currency and credit system effectively as also to maintain price stability. He has to juggle these objectives with the imperatives of growth that would be demanded by the mandarins at North Block. Das, with his suave disposition, articulation and gregarious nature, should rise to meet the challenges of his new exalted office.