By Corinne Abrams, Rajesh Roy and Debiprasad Nayak
NEW DELHI -- India named a former civil servant as the governor
of its central bank a day after his predecessor resigned following
months of tensions with a government that has pushed to loosen
restrictions on bank lending with a general election looming next
year.
The government chose the bureaucrat, Shaktikanta Das, as the new
governor of the Reserve Bank of India after Urjit Patel resigned
for what he said were personal reasons.
Prime Minister Narendra Modi's government had for months been
asking the central bank to ease restrictions on state-run banks to
boost lending. At one point the government even threatened to
invoke a law allowing it to directly set central bank policy,
people familiar with the matter said.
Mr. Patel's resignation, before the end of his three-year term,
raised questions about the central bank's independence and the
government's push for policies that analysts said would boost
growth in the short term ahead of a general election next year.
Mr. Patel was credited with keeping inflation in check but was
criticized by some investors for focusing on improving the health
of India's ailing big banks, which they said hamstrung lending.
Banks became even more cautious in their lending after the
government stepped in to take over a nonbank lender Infrastructure
Leasing & Financial Services Ltd. in October after it defaulted
on debt payments.
The new governor, Mr. Das, 63, was secretary at the Department
of Economic Affairs, part of the country's Ministry of Finance,
from 2015 to 2017. He was the key civil servant at the helm of the
department in 2016 when Mr. Modi announced the voiding of 86% of
currency in circulation, a controversial move aimed at reducing
corruption but that also led to severe cash shortages across the
country of 1.3 billion people. Mr. Das defended the move at several
news conferences as the cash crunch hit.
While appointing a former civil servant as governor of the
central bank isn't unprecedented in India, "whenever a person comes
from the Ministry [of Finance] to the RBI, generally the question
arises about the autonomy of the central bank," said Sujan Hajra,
chief economist at Mumbai-based Anand Rathi Securities. "In the
current juncture, there will be more such questions," he said.
The news of Mr. Das's appointment came as Mr. Modi's ruling
Bharatiya Janata Party looked set to suffer disappointing defeats
in several states Tuesday in a set of elections seen as a
bellwether for the general election that must be called by May next
year. In preliminary poll results, the party appeared likely to
lose in three key states of Madhya Pradesh, Chhattisgarh and
Rajasthan.
The central bank has been under pressure to help bolster the
economy over the past few months. The sudden cancellation of of
some high-denomination bank bills in 2016 and a chaotic
introduction of a new goods and services tax have hampered India's
economic expansion. India is still the world's fastest-growing
large economy but its year-to-year expansion slowed to 7.1% last
quarter compared with 8.2% the quarter before that.
The Ministry of Finance in October sent letters to the central
bank asking it to consider easing lending restrictions on 11
state-run banks. The restrictions were imposed to help them recover
from a buildup of nonperforming loans.
Under the central bank's code, the government can direct the RBI
to act if it believes it is in the public interest. The government
issued a statement in October saying that it consulted with the
RBI.
In the same month, Finance Minister Arun Jaitley said the RBI
had failed to arrest the growth of bad loans at state-run banks,
maintaining that the central bank "looked the other way."
His comments followed a speech by RBI Deputy Gov. Viral Acharya
in which he spoke of the importance of central banks' independence.
"Governments that do not respect central bank independence will
sooner or later incur the wrath of financial markets," Mr. Acharya
said in the speech. In a footnote to it, he said that Mr. Patel had
suggested the theme of the speech.
Mr. Patel took over as central bank governor from Raghuram
Rajan, who said he wouldn't serve a second term after being
criticized for being too outspoken on matters other than monetary
policy. Mr Rajan was also credited with bringing inflation under
control.
"I think it's a matter of great concern," Mr. Rajan said of Mr.
Patel's resignation in a phone call to a local television station
on Monday. He said the resignation "is really a note of protest,"
adding, "It is saying the person cannot stay on, given the kinds of
policies that are being thrust upon them."
Mark Williams, chief Asia economist at Capital Economics, said
"investors will be looking for someone with an independent frame of
mind" in a new governor.
Mr. Das wasn't immediately available to comment on his
appointment.
Within New Delhi power circles, Mr. Das is seen as a capable
official with sound knowledge of financial matters.
"He has been assigned the new job due to his capabilities and
track record of having successfully handled key challenges faced
during the initial years of this government," an official in Mr.
Modi's office said, declining to be identified.
The RBI's independence is now set in the culture of the bank and
its monetary-policy committee, said Saugata Bhattacharya, senior
vice president at Axis Bank. "This is a very institutionalized
system, now they are not relying on just one person," he said,
adding that Mr. Das "is known to be moderate and very
pragmatic."
Write to Corinne Abrams at corinne.abrams@wsj.com, Rajesh Roy at
rajesh.roy@wsj.com and Debiprasad Nayak at debi.nayak@wsj.com
(END) Dow Jones Newswires
December 11, 2018 14:34 ET (19:34 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.