Yesterday, we saw the abrupt resignation of RBI Governor Urijit Patel. Patel cited “personal reasons” for his resignation, but the undercurrents were impossible for anyone to ignore. Irrespective of what may be the actual reason, no one can deny that the relation between the RBI and the Government of India, was tenuous at the very least.
Today, we saw the results of 5 major states’ assembly elections pan out. Counting is still on, but very clearly BJP has under-performed. Anti-incumbency, local factors etc can be argued to be the cause of disappointing results, but the fact of the matter remains that these results do not indicate an easy 2019 campaign.
And just a few minutes ago, it was revealed that Shaktikanta Das, who is currently a member of The Finance Commission and Former Finance Secretary (the one who presided over Demonetisation), has been appointed as the new RBI Governor. India has had several former bureaucrats as RBI Governor, but this is Modi’s first such appointment. And the timing is interesting.
Former finance secretary Shaktikanta Das comes in place of RBI governor Urjit Patel who resigned Monday citing personal reasons. https://t.co/cKNHY6bpOa
— Livemint (@livemint) December 11, 2018
Imagine a Government which feels it is being stifled economically to roll out measures which it believes will improve the economy, and thus general prosperity. Imagine a Government which has tried this by playing the game in a gentlemanly fashion. Imagine a Government which is now in its last few months. What will it do?
By all means, Modi is now going for the kill. He worked with two economists RBI governors, and now he feels its time he plays with one who can aide him and his Government in rolling out all that they want. The last roll of the dice if one may say.
This could mean many things. We may finally see a rate cut in line with the Government’s requirement. We could see lesser curbs on lending to MSMEs, thus spurring their growth. We could see a relaxation of the RBI’s prompt corrective action, which imposed lending curbs on 12 weak PSU banks. We could see more liquidity flowing to the shadow banking sector, reeling under defaults of Infrastructure Leasing & Financial Services (IL&FS). We could see an independent payments regulator, something which the Government wants, but the RBI is publicly against.
What could all of the above mean for India and Modi? It can spur growth and demand, thus creating jobs, and possibly easing some rural distress. It can change the optics (of growth numbers) as well as the actuals (direct increase in demand). And both are crucial, especially in an election year.
Appointing an IAS to the post of Governor is not out of place, but coming on the back of 2 high profile non-bureaucrat appointees, this one may raise a stink in the corridors of policy wonks. But it seems Modi no longer cares for these ivory tower optics. His average voter in UP or MP barely knows and cares for who is the RBI Governor. But he does care if he gets a business loan cheaper and quicker, if his produce has demand, if his son gets his job. This is a trade-off and it appears Modi has settled for this.
This is almost a signalling of intent by Modi: that he is no longer willing to play Mr Good Guy who loses at the end. And that he is not going into 2019 without a fight. The slog overs have begun, and Modi is padding up, watch out in the stands.