Barely 24 hours after Urjit Patel quit as governor of the Reserve Bank of India, the government appointed former finance ministry official Shaktikanta Das as his successor.
Patel’s sudden resignation followed a rift between the central bank and Prime Minister Narendra Modi’s government, which was reportedly leaning on him to do more to boost the economy months before an election.
Modi is seeking a second term in office in elections due early next year, but a slowdown in growth has raised questions about his handling of the economy. Growth slumped from 8.2% to 7.1% in the quarter ended September, and India’s currency, the rupee, has fallen around 12% against the US dollar this year, hitting record lows.
The rupee fell following Patel’s resignation on Monday, and dropped again on news of Das’ appointment.
It was the second time a central bank chief had stepped down in less than three years, and investors are concerned the RBI is being pressured to relax its fight against inflation and India’s mountain of bad debt. One of Patel’s deputies warned in October that government meddling in the bank’s decisions could prove “catastrophic.”
“With Das at the helm, the RBI is likely to offer much less resistance to the government’s demands, bolstering near-term economic growth at the cost of reducing investors’ confidence in the independence of the RBI as an institution,” wrote Sasha Riser-Kositsky, senior South Asia analyst at the Eurasia Group, in a research note.
The speed of the appointment has also raised eyebrows and will suggest “that he was handpicked beforehand,” Pronab Sen, India’s former chief statistician and country director for the International Growth Centre, told CNN Business.
“The haste with which it has been done is going to give rise to suspicions,” Sen said, adding that Das will now be under enormous pressure to prove himself.
“That’s not a good way for him to start,” he said. “It’s not good for the country.”
Patel, by contrast, was appointed two months after the resignation of his predecessor, Raghuram Rajan. He stepped down prematurely in 2016 over disagreements with the Modi government.
Das, until he retired in May last year, was part of that government.
Cash ban controversy
As secretary of economic affairs, Das played an important role in implementing Modi’s controversial ban on most of the country’s cash in November 2016. That decision shocked India’s economy, slamming the brakes on growth and bringing many sectors to a grinding halt.
Das is still advising the Indian government, and was one of its envoys to the G20 summit in Argentina this month.
Sen says Das’ government experience doesn’t necessarily mean he will bow to Modi’s wishes. But his new role should be clear from the outset.
“As RBI governor, his [duty] should be the independence and integrity of the RBI.”