The job at hand for Raghuram Rajan’s successor


A close relation of one of my friends, a senior executive at a multilateral agency for years now, is quite upset because her name does not feature in the media “list of probables” for the Reserve Bank of India (RBI) governor’s post. Ditto about an economist attached to an Indian think tank. This gentleman has stopped attending parties to avoid embarrassment of explaining to his peers why his name is not there.

In the past one month, since governor Raghuram Rajan made it public that he would not seek a reappointment, both print media and the TV channels are throwing up every possible name as his successor. The scene used to be very different on earlier occasions. Each time a governor was stepping down, only a handful of names would do the rounds as his possible successor. Among the names that appeared more than once was that of Montek Singh Ahluwalia.

Let’s take a look at the list this time around. I am putting them an alphabetical order to avoid giving an impression that I have a favourite or I think X has a better chance than Y.

A: Arundhati Bhattacharya (chairman of State Bank of India), Arvind Panagariya (vice chairman of NITI Aayog, a government of India policy think tank that replaced Planning Commission), Arvind Subramanian (an economist and chief economic adviser to the government of India), Ashok Chawla (former chairman of Competition Commission of India), and Ashok Lahiri (former chief economic adviser to the government).

B: Bimal Jalan (who had a stint as RBI governor between 1997 and 2003).

J: Jugal Kishore Mohapatra (former rural development secretary).

K: Kaushik Basu (former chief economic adviser to the government of India and now chief economist at the World Bank) and K.V. Kamath (head of the New Development Bank of the BRICS countries).

P: Parthasarathi Shome (former adviser to Indian finance minister).

R: Ratan Wattal (former finance secretary and now a liaison officer with the Jammu & Kashmir government to ensure flow of funds to the state on a fast track), R. Vaidyanathan (a professor at Indian Institute of Management, Bangalore), and Rakesh Mohan (a former RBI deputy governor).

S: Shaktikanta Das (economic affairs secretary), Subir Gokarn (former RBI deputy governor and currently an executive director at the International Monetary Fund), and Sumit Bose (former finance secretary).

U: U.K. Sinha (chairman of Securities and Exchange Board of India) and Urjit Patel (an RBI deputy governor).

V: Vijay Kelkar (former finance secretary) and Vinod Rai (former Comptroller and Auditor General of India and now chairman of Bank Boards Bureau).

Even after this, I may have missed a few names and apologize for that. There could be quite a few reasons behind so many names being cited as a possible successor to Rajan.

One, many of the newspapers and TV channels indulge in speculation as they love to tell the world “I told you so” in case one of the many names being mentioned hits the bull’s eye.

Two, unlike in the past, there is a problem of plenty now and what we are witnessing is a fierce competition among a bunch of talented economists, bureaucrats and bankers for the job of India’s chief money man.

Three, since we are relatively better off in terms of macroeconomic parameters, anybody can do this job. Jalan took over in the thick of east Asian crisis; D. Subbarao came in immediately after the collapse of US investment bank Lehman Brothers Holdings Inc.; and Rajan occupied the seat when inflation was in double digits and the local currency was fast depreciating against the dollar. Now, we have a stable currency, relatively low inflation and low current account deficit.

Finally, there could be trial balloons being floated by junior and not-so-junior bureaucrats through news-hungry media to gauge the public sentiment even as former governor Subbarao’s tell-all book Who Moved My Interest Rate has queered the pitch for the government. It’s a caution to the incumbent on the uneasy relationship that an RBI governor can have with the finance ministry and a message to the ministry that a governor, however close he is to the government before he moves to the central bank, can spill the beans after he is out.

The media frenzy to find Rajan’s successor reminds one of what had happened when Ratan Tata was retiring as chairman of Tata Sons. The long list, published over months, had many names from India and overseas but not Cyrus P. Mistry who actually succeeded him when Tata retired in December 2012. No one will be surprised if a dark horse emerges from nowhere for the governor’s post.

Whoever comes may not have an easy job at hand. In the past one month, since Rajan announced his decision to go back to the academic world, the level of rupee has remained unchanged but the 10-year government bond yield has dropped from 7.5% to 7.27% and most bank stocks have risen, some of them substantially. Bankex, the representative industry index on BSE, has risen 7.3%. Out of 39 listed banks, only five stocks have fallen—three of them are associates of the State Bank of India, besides Central Bank of India and Punjab & Sind Bank. Among public sector banks, Punjab National Bank has risen close to 44%, Allahabad Bank 36% and Indian Bank and Canara Bank, more than 25% each. Overall, 13 state-owned banks and six private banks have risen at least 10% and as much as 44% in past one month.

Clearly, the market is factoring in two things—in the new regime, interest rate will fall and the pressure on the banks to clean up their balance sheets will be diluted. And, of course, the government will continue to infuse capital in the state-owned banks without any conditions even as the brainstorming on bank consolidation to create a few large banks will continue for years without any solution in sight. Meeting the expectations of the market, the banking system and the government is no mean job. Nobody should grudge the person who moves to the corner room at the RBI headquarters in the first week of September.

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