India named a former bureaucrat who oversaw Prime Minister Narendra Modi’s controversial cash ban program as its new central bank governor, a day after Urjit Patel abruptly quit following disagreements with the government.
Shaktikanta Das, 63, who often sought a cut in interest rates during his time at the Finance Ministry, was appointed for a three-year tenure, according to a statement on Tuesday from the Personnel Ministry. He will be the 25th governor of the 83-year-old monetary authority.
A former economic affairs secretary from 2015 to 2017, Das worked closely with the central bank and oversaw Modi’s plan to ban high value notes in late 2016, an exercise that hurt the economy and led to thousands of job losses. He is currently a member of the Finance Commission of India, and serves as the government’s representative at the Group of 20 summits.
The new governor takes over at a contentious time for the Reserve Bank of India. Modi’s government wants more control over the central bank’s functions and higher dividends to help finance its budget deficit. That caused friction between the authorities and Patel, resulting in his departure on Monday. The government is also pushing the RBI to loosen curbs on some of the weakest banks to ensure lending continues ahead of an election next year.
He’ll also take charge of the six-member monetary policy committee, which left interest rates unchanged last week after two hikes earlier this year. With inflation undershooting the central bank’s forecasts, there are growing expectations that the RBI will shift to a neutral policy stance from its current tightening bias, which could set the stage for a rate cut.
Aashish Sommaiyaa, chief executive officer at Motilal Oswal Asset Management Co. in Mumbai, said the quick appointment of Patel’s successor removes uncertainty for investors, which is a good thing.
“There was a disconnect between the government and the central bank and the market now expects a less hawkish stance under the new regime,” he said.
Modi initially brought Das into the finance ministry to head the revenue department, later moving him to economic affairs, where he oversaw the demonetization program.
“Das has got the right credentials,” said Ashok Chawla, a former finance ministry official. “He’s a balanced person who carries people along. He’s a consensus builder and that’s the need of the hour.”
The government wants the RBI to ease a liquidity crunch to help the crisis-ridden shadow banking industry, which has been making at least 3 out of 10 fresh loans in the past few years. The crisis in the sector threatens consumption, the bedrock of Asia’s third largest economy.
Das will have to sort out debt defaults in a sector saddled with bad loans and share oversight of state-run banks with the government.