G. Gopalakrishna, the most senior among Reserve Bank of India’s (RBI’s) nine executive directors, seems to have lost in the race to become a deputy governor in the Indian central bank even as incumbent Anand Sinha retired last week. His colleagues B. Mahapatra, R. Gandhi and P. Vijaya Bhaskar feature in the list of candidates to replace Sinha. A search committee, headed by RBI governor Raghuram Rajan, has shortlisted the three.
The appointments committee of the cabinet, headed by Prime Minister Manmohan Singh, has not cleared anyone for the post yet and, if people familiar with the matter in New Delhi are to be believed, the department of personnel and training has raised questions about the exclusion of Gopalakrishna from the shortlist. Apart from being the senior-most among the deputy governors, Gopalakrishna also belongs to a scheduled tribe and this complicates the situation as many see this as a backward-class professional being denied a senior RBI position.
Traditionally, RBI has four deputy governors. Of the four, typically two are RBI insiders, one an economist and the other a commercial banker, even though this has not always been the case. Currently Sinha and H.R. Khan are insiders, while Urjit Patel and K.C. Chakarbarty do not belong to the RBI cadre.
If indeed Gopalakrishna does not become a deputy governor, this will not be the first instance of a senior executive director being superseded. Usha Thorat, a former deputy governor, had superseded P.K. Biswas and K.J. Udeshi superseded K.L. Khetrapal. By no stretch of imagination should seniority be the only criterion of an executive director’s elevation to the post of a deputy governor but at the same time, the most senior executive director can also be competent and a deserving candidate.
Till about five years ago, the deputy governors’ appointment was done by the government on the recommendation of the RBI governor. For the first time in RBI’s history, a search committee prepared a list of candidates to identify former deputy governor V. Leeladhar’s successor in 2008. Chakrabarty, then a commercial banker, had a tough fight with T.S Narayanasami, former chairman and managing director of Bank of India, on his way to RBI to replace Leeladhar. The provocation for setting up the search committee was a petition filed by a former executive director of RBI in the Delhi high court against the government of India and the RBI governor, challenging the appointment of Thorat, another former deputy governor. Biswas, a former executive director, had argued that he should have been made the deputy governor, but was superseded by Thorat, a junior colleague. Both Biswas and Thorat had joined RBI in 1972 but Biswas was placed higher on the merit list.
This was the second instance of the appointment of a deputy governor causing discontent among senior central bank officials. When Udeshi became a deputy governor in June 2003, then executive director K.L. Khetrapal had resigned in protest. The Delhi high court had refused to quash Thorat’s appointment, but observed that the RBI governor should have a “comparative assessment of the suitability and performance of all eligible candidates” at the time of recommendation. I am sure the search committee has done the comparative assessment of performance of all executive directors before picking up Mahapatra as the best choice, and rejecting Gopalakrishna and can answer the questions raised by the department of personnel and training. The last thing one would like to see is the politicization of a deputy governor’s assessment because the senior-most candidate belongs to the backward class.
Cry freedom
How independent is RBI? Three past RBI governors—Bimal Jalan, Y.V. Reddy and D. Subbarao—tried to answer this question at a seminar in Delhi last week. Jalan is one who does not want to “stretch” the aspect of autonomy too much as he firmly believes in a “consultative” process. In a democratic set-up, RBI is accountable to Parliament through the ministry of finance and both the central bank and the ministry need to work in consonance. So, when the Bharatiya Janata Party-led National Democratic Alliance government wanted a strong rupee after its sharp fall in the East Asian currency crisis, Jalan met the prime minister and told him not to make such statements and give RBI a target as he would not be able to meet the target. Reddy was rather straightforward in his interpretation of autonomy—the sovereign has granted you independence and you should not be afraid of losing it. As governor, he had supposedly fought the maximum for RBI’s independence on many policy issues but was remarkably restrained while talking on autonomy. “If you ask me, I’d say I am very independent and I have taken the finance minister’s permission to say so,” he said at the seminar with a straight face.
Subbarao, who laid down office last September, did not say much except for “it has been very challenging”. In his regime, RBI lost the battle for autonomy to the ministry of finance with Parliament passing a regulatory dispute resolution Bill replacing an ordinance that was promulgated when two regulators—Securities and Exchange Board of India and Insurance Regulatory and Development Authority—fought hard on jurisdiction over unit-linked insurance policies. On occasion, Subbarao tried hard to defend the central bank’s autonomy.
He even wrote a letter to then finance minister Pranab Mukherjee, saying, the “appearance of autonomy is as important as the actual autonomy itself”. Jalan offered a simple solution to the vexed problem. If the government is not with the governor, he cannot walk alone; he should step down. A few who know Reddy well say, tired of fighting with the finance minister on many policy issues, he volunteered to step down at least once. But this was done in private and no record is kept.
