India designates new central bank chief

THE Indian government named an ally of Prime Minister Narendra Modi as the country’s new central bank chief on Tuesday, a day after his predecessor quit following a dispute about government interference.

Shaktikanta Das has been appointed governor of the Reserve Bank of India (RBI) for three years, a government statement said.

The 63-year-old is a former senior finance ministry official and a key figure in Modi’s controversial “demonetisation” scheme of November 2016.

Das has worked with various government bodies and was part of the economic affairs ministrywhenModiannounced his controversial cash ban that scrapped 86 per cent of notes overnight.

“The government has hired an insider who will be sympathetic to government concerns and not hold diverging opin- ions,” independent economist Ashutosh Datar told AFP.

“This is an extremely disappointing choice and is the final straw in chipping away at the RBI’s integrity and freedom to set rates and take policy decisions,” he added.

Patel stood down as governor on Monday evening follow ing mont hs of tensions with Modi’s government over i nter ference i n pol ic y t hat experts say raises fears about its independence.

Patel cited “personal reasons” for his decision but analysts and media reports have said he was annoyed by New Delhi’s repeated efforts to impose its influence.

Analysts say Patel’s departure, extremely rare for a central banker before the end of his term, is evidence that the RBI’s autonomy is under threat.

The Indian rupee sank more than one per cent against the dollar on Monday, with speculation that an RBI intervention kept it from falling further.

“Das is a career bureaucrat and sympathetic towards the government,” Anand Rathi Securities Pvt Ltd economist Sujan Hajra told AFP.

“It may help the government and the RBI ensure better coordination but will raise questions about the latter’s integrity,” he added.

Patel’s resignation comes after his deputy, Viral Acharya, warned the government in a s t r o ngl y worded s pee c h in October that undermining the bank’s independence could be “potentially catastrophic”.

Indian business dail i es reported in October and November that the government had invoked never-before-used powers to send at least three letters to Patel seeking to direct policy.

Newspapers suggested Patel was close to quitting over the issue at the time, but the tensions were believed to have been diffused following clearthe-air talks three weeks ago.

The government is believed to be unhappy with the RBI over a number of issues including its handling of interest rates, how to deploy reserves and what to do about the sliding rupee.

‘Worst performing currency’

The rupee has been one of Asia’s worst performing currencies this year, although it has bounced back in the past fortnight, while economic growth s l owe d t o u n d e r e i g h t per cent in the July-September quarter.

It is understood the government is pressuring the bank to enact policies to help spur growth ahead of next year’s elections, when Modi will run for a second term.

A senior official from a government think-tank played down the resignation, however, saying the RBI was “not dependent on any one particular individual”.

“RBI’s institutional capabilities are very strong and they will do whatever is required for the markets and economy,” said Niti Aayog vice chairman Rajiv Kumar, according to the Press Trust of India.

The government would like the RBI to lower interest rates and free up more of its cash reserves to invest in Asia’s thirdlargest economy, analysts say.

The Ministry of Finance wants mainstream commercial banks to be allowed to lend more but the RBI is reluctant, instead focusing on tackling a massive bad loans crisis.

Patel took over as RBI chief in August 2016 and his term was due to end in September next year. Governors are traditionally offered a second term.

Patel succeeded the charismaticandoutspokenRaghuram Rajan who himself clashed with the Bharatiya Janata Party-led government.

Patel was initially seen as a more pliant figure before locking horns with Modi and Minister of Finance Arun Jaitley.