RBI governor Shaktikanta Das, who kept a hawk’s eye on inflation, ends innings

Shaktikanta Das steadied the economy through unprecedented crises, such as the pandemic, and a spell of global price spiral, which stoked India’s domestic inflation.

NEW DELHI: Achieving the right balance between inflation and growth, a key tradeoff for all economies, is “the most important task for the Reserve Bank of India (RBI)”, Shaktikanta Das, the outgoing governor of India’s central bank, said on Tuesday.

RBI governor Shashikanta Das leaving the RBI building in Mumbai after completing his term on Tuesday. (HT Photo/Anshuman Poyrekar)

Das, by a wide reckoning, steadied the economy through unprecedented crises, such as the pandemic, and a spell of global price spiral, which stoked India’s domestic inflation.

Das was a career bureaucrat from the Indian Administrative Service and held important positions in the finance ministry before Prime Minister Narendra Modi appointed him the Reserve Bank of India governor in December 2018.

The government on Dec 9 appointed revenue secretary Sanjay Malhotra as the new central bank governor, surprising markets, which expected Das to be given a second extension.

Das stepped in at a time when the relationship between the government and the central bank was fraught with tensions.

One of Das’s key accomplishments was that he smoothened all channels of institutional links between the finance ministry and the central bank to harmonise their relationships, analysts said.

Central banks, worldwide, fundamentally act to keep prices in check by tinkering with interest rates, which often hurts growth. Governments invariably pursue policies to try and push the GDP growth rate up. It is this tradeoff that makes the role of central bank governors so “challenging and vulnerable”, as Ben Bernanke, former US Federal Reserve chair, wrote in his best-selling “The Courage to Act”.

An accomplished technocrat, Das remained focused on controlling inflation. During 11 straight meetings of the rate-setting committee, the central bank kept the repo rate unchanged after raising it by 250 basis points to 6.5% between May 2022 and February 2023. A basis point is one-hundredth of a percentage point.

This had begun to trigger concerns in the government. The government voiced concerns about higher interest rates amid a slump in growth. “I certainly believe they (RBI) should cut interest rates. Growth needs a further impetus,” commerce minister Piyush Goyal said at an event on 14 November, adding it was an “absolutely flawed theory” to consider food inflation while deciding on rates.

A few days later, finance minister Nirmala Sitharaman echoed the same view. “At a time when we want industries to ramp up and build capacities, our bank interest rates will have to be far more affordable,” the minister said on November 18.

Das, however, was, as one economist said on the condition of anonymity, “risk averse in a risky world who would privately say that risks are worth taking when the opportunity arises”.

“In one of his most recent initiatives, he took steps to prevent a build-up of risk, asking lenders to avoid all ‘forms of exuberance’”, the person cited above said.

“I think growth is impacted by a multiplicity of factors, not just one factor of the repo rate,” Das said after last week’s policy review meeting.

“Our effort has been to follow and make monetary policy as appropriate as possible, keeping in mind the prevailing conditions and the overall outlook.”

One of the longest-serving chiefs of RBI, Das took on his role after his predecessor Urjit Patel resigned following a tumultuous relationship with the government.

Not only did Das help normalise the government-bank relationship, but he also helped a speedy recovery after the pandemic and steadied the financial markets.

“The inherent potential of the Indian economy to grow is very much intact,” Das told reporters on Tuesday.

When Das contracted Covid-19 infection on Oct 25, 2020, he worked remotely for the entire period of sickness, attending every meeting till his recovery. To be sure, he had been, admittedly, by and large asymptomatic.

“Will continue to work from isolation. Work in the RBI (Reserve Bank of India) will go on normally,” he had said at the time.

Das’s successor Sanjay Malhotra’s tenure comes at a time when economic growth has slowed and inflation has risen.

GDP growth in the September quarter slipped to 5.4%, its slowest pace in seven quarters, and inflation rose above the central bank’s 6% tolerance band in October for the first time in over a year. The classic inflation-growth tradeoff awaits the new governor.