Choice of new governor is predictably from the IAS

A nail-biting wait for the appointment of the RBI Governor ends as the government announces that current revenue secretary Sanjay Malhotra will be the next governor of the Reserve Bank of India (RBI).

Malhotra comes with rich experience and thorough knowledge of government cash flows that he would have gleaned as Revenue Secretary. He has a degree in engineering from IIT Kanpur, which qualifies him to understand the brave new world of fintech, artificial intelligence (AI) and machine learning (ML) probably a little better than those with liberal arts training. He has also headed the Rural Electrification Corporation (REC) and held other positions in the power sector that make him understand the world of infrastructure financing and capex issues a little better.

The market is inclined to think that freshly minted from North Bloc, he will be more beholden to his former colleagues and minister and will hence be more dovish. Perhaps a rate cut in February was what even Governor Das would have given. But both markets and Malhotra will soon realise that the governor will be held accountable if inflation crosses the tolerance threshold, if loan defaults mount, or if there is a slip-up in financial stability. So expect Malhotra to be an RBI man very soon.

Malhotra dons the governor’s hat at a slightly tough time with growth slowing and inflation rising versus expectations. But that’s a challenge he can handle with some cooperation from his former colleagues in North Bloc.

The new governor’s bigger challenge is the imminent departure of Deputy Governor Michael Patra. An economist par excellence and the part author and executor of the inflation targeting framework, Dr Patra would have handheld Governor Das on several occasions in the past six years. But Patra’s term ends in January, and an advertisement for his replacement is already out.

The RBI in general and the monetary policy department in particular are losing their captain and vice captain almost simultaneously. At the moment of this writing, sources say it is tough to see Patra getting an extension. Rajiv Ranjan is of course an able deputy who can ensure continuity in the monetary policy department and the MPC. But Patra will be missed. Governor designate Malhotra may realise that soon.

However, the new governor will be part of the committee selecting Patra’s successor, and may be, he can try and pick a winner and/or promote Ranjan. On other issues, Malhotra has plenty of help and time. The regulation department head, DG Rajeshwar Rao, the supervision department head, DG Swaminathan, and the digital banking fintech and payments head, DG Rabisankar Tavarna, are past masters.

RBI’s well-oiled machinery will keep the wheels moving on autopilot till Malhotra feels confident of steering the central bank in new directions when faced with new challenges. But he will be measured by the high standards of outgoing governor Shaktikanta Das.