Shaktikanta Das became the first Reserve Bank of India (RBI) governor to win a second term since the government led by Narendra Modi took office in 2014.
The former bureaucrat, who took over the managerial post at the central bank on December 10, 2018, began his next three-year term on Saturday.
For the past three years, Das has led the RBI through some of the most difficult situations. A 1980 Indian Administrative Service (IAS) Das batch officer took office after his predecessor Urjit Patel abruptly resigned his post before his tenure ended.
While Patel had resigned for “personal reasons”, it has been widely assumed that the main reason for his exit from the central bank was disputes with the government.
Thus, the first major challenge for Das was to bridge the differences between the central bank and the government, on the one hand, and to maintain the credibility and autonomy of the institution, on the other hand.
Unsurprisingly, the government-RBI relationship dominated Das’ first press conference as RBI governor three years ago.
Commenting on the differences between the government and the central bank, Das had noted, “I will not go into the issues between the RBI and the government, but each institution must maintain its autonomy and also adhere to the responsibility.
“I don’t know if the government-RBI relationship is blocked, but I think consultations with stakeholders should continue,” he added.
Das, a prominent face of government during demonetization, has been fairly successful in eliminating the differences between the government and the RBI.
Barely a year after Das took office as governor of the RBI, the COVID-19 pandemic has hit the world. As a key economic decision maker, Das has faced difficult times in managing the disruption caused by the COVID-19 pandemic. He chose to lower the policy repo rate to an all-time low of 4% in May 2020 and has kept the interest rate regime low since then.
Prior to assuming the office of 25th Governor of the RBI in December 2018, Das served as Secretary of Revenue and Secretary of Economic Affairs at the Ministry of Finance.
He was also a G-20 Indian Sherpa and was appointed a member of the 15th Finance Committee. Das’ second term ends in December 2024. When he completes his second term, Das will be the first RBI governor in seven decades to serve such a long term.
During the last monetary policy review of the RBI’s first term as governor, Das decided to maintain a status quo on policy rates. The repo rate and the reverse repo rate were kept unchanged at 4 percent and 3.35 percent, respectively.
The repo rate is the interest at which the RBI lends short-term funds to banks, while the reverse repo rate is the interest the RBI pays banks on their deposits. The RBI also decided to keep the marginal permanent facility (MSF) rate unchanged at 4.25%.
As Das enters his second term, his task is reduced. The central bank has kept interest rates low to help the economy, which has been hit hard by lockdowns induced by the COVID-19 pandemic. There have been good signs of a pickup in GDP growth in recent quarters.
India’s GDP grew 20.1% in the April-June 2021 quarter compared to a contraction of 24.4% recorded in the corresponding quarter a year ago. In the July-September 2021 quarter, GDP grew 8.4% compared to a 7.4% contraction recorded in the same period last year.
Although there has been a good recovery, India’s GDP level is still lower than in the pre-COVID period. Thus, continued political support is needed to maintain the growth momentum of GDP.
Going forward, Das will face a greater challenge in keeping inflation under control. Although inflation has remained within the RBI’s 2-6% target, the recent trend is worrying. Consumer Price Index (CPI) inflation is expected to hit 5.7 percent in the fourth quarter of the current fiscal year, from 5.1 percent expected in the third quarter, according to the RBI estimate. .
Headline CPI inflation is expected to remain at 5.3 percent in the current fiscal year. According to the RBI, CPI inflation is expected to remain at 5% during the first half of 2022-2023. However, most analysts believe it would stay at an even higher level.
GDP growth for the current fiscal year is set at 9.5 percent. It is projected at 17.2% and 7.8% in the first and second quarters of 2022-2023, respectively.
Despite low interest rates, credit growth has not reached a satisfactory level. It hovers around 7 percent, which is too low for the Indian economy. Credit growth is weak despite the fact that there has been a huge excess of liquidity in the banking system for over a year now.
Das would be required to take a calibrated approach to managing liquidity and driving credit growth.
Expressing concern over weak credit growth, Das recently said: “The growth in demand is not meeting our expectations as there has been a second wave of the pandemic and businesses are on hold and watch. “.