Next RBI Governor may be a person who currently holds...

WALL STREET JOURNAL-INDIA

Some Surprise Contenders for RBI Governor

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By Prasanta Sahu

The next governor of the Reserve Bank of India will likely be the man who currently holds the job.

There’s a growing chance that Duvvuri Subbarao will stay on in his position for a while after his tenure expires on Sept. 4.

Mr. Subbarao may get an extension of around a year, to ensure continuity and stability in monetary policy at a time when the economy is going through a rough patch and federal elections are around the corner, according to four senior government officials.

“Discussions are going on” to give Mr. Subbarao an extension, one senior official with knowledge on the matter told India Real Time.

If that happens, it would upset a widespread perception among analysts that the top job will go to Raghuram G. Rajan, a former chief economist for the International Monetary Fund who took over as India’s Chief Economic Advisor in September. Government officials say that Mr. Rajan is not ready for the job yet as he is not fully familiar with the government’s decision-making process.

In India, the central bank governor is selected by the prime minister in consultation with the finance minister.

Mr. Subbarao was first appointed RBI governor on Sept. 5, 2008, for a three-year term, which was extended by two years in 2011.

During his time at the central bank, Mr. Subbarao has been busy trying to bring India’s high inflation under control, and more recently, to check the rupee’s rapid decline.

Mr. Subbarao has also been championing for more autonomy for the RBI, and has withstood political pressure to cut interest rates, in his bid to fight inflation. India’s benchmark inflation, which was around 8% to 9% a few years ago, has lately fallen to below 5%.

Bureaucrats say that the government realizes the need to have an independent regulator.

They say that giving an extension to Mr. Subbarao makes sense because soon the government will go into election mode for five state elections by December and federal elections any time before May 2014. By allowing Mr. Subbarao to stay, India would get continuity in policy until the next government chooses a successor next year.

If it is not Mr. Subbarao, other top contenders for the RBI governor’s post are Economic Affairs Secretary Arvind Mayaram, and Mr. Rajan.

Both Mr. Mayaram and Mr. Rajan work closely with Indian Finance Minister P. Chidambaram, and have lately been active in discussions about dealing with India’s economic challenges such as a sliding rupee, high current-account deficit and attracting stable capital inflows. But these options are not clear cut, officials say.

Mr. Mayaram is a career bureaucrat and belongs to the elite Indian Administrative Service. Many officers say he may be reluctant to go to the RBI because if he stays on in Delhi, he might be able to get the position of cabinet secretary, which would make him the top most bureaucrat in the country. Mr. Mayaram could not be reached for comment.

Mr. Rajan, meanwhile, should ideally serve in the government for three to five years to understand the working of various departments, say government officials. They say this is important because an RBI governor needs to deal with several ministries to frame appropriate policies. Officials say Mr. Rajan could be considered for the RBI top job at a later date. Mr. Rajan did not respond to a request for comment.

ONLINE COMMENTS

·                                 M G WARRIER wrote on July 16, 2013:

Last year’s developments which saw easing out of a Deputy Governor (Subir Gokarn) for no fault of his and compulsions to retain another Deputy Governor for another year calls for a review of the selection and placement procedure at that level and at the level of Governor. GOI generally handles successions in RBI with some deft and care. These and shuttling of Rakesh Mohan between North Block and Mint Road can be considered ‘exceptions’ in the graceful handling of succession plans in RBI, if one looks at the meddling with placements(or withholding appointments) at certain other key positions in government and public sector in India. It would be a wise option to allow Governor Dr Subbarao initially to continue for another year and leave it to the post-General Election team in New Delhi to decide on the next Governor. This will also give some time for
formulating and implementing a succession plan for the top job in the central bank which should factor in the need to infuse professionalism and efficiency as also a graceful approach to changes in incumbency at the levels of Governor and Deputy Governors.
As the situation in India is not comparable to that in developed countries, there is substance in the argument that Rajan may need a short period of ‘grooming’ before taking up the position as RBI Governor.