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An open letter to the RBI governor

January 11, 2019 11:59 IST

Central banking is a science, not an art, Tamal Bandyopadhyay tells RBI Governor Shaktikanta Das.

IMAGE: RBI Governor Shaktikanta Das.

Dear Governor,

The day you took over as India's chief money man, you tweeted: 'Assumed charge as governor, Reserve Bank of India. Thank you each and everyone for your good wishes'.

A few days later, after the board meeting, you tweeted again: 'Good meeting of RBI central board. Wide ranging issues discussed'.

I don't know about global central bankers, but this is the first time a Reserve Bank of India governor is using social media to communicate.

You have ushered in glasnost on Mint Road. Thank you.

 

If this is unheard of in the RBI's history, the series of events leading to your arrival at the central bank is also unprecedented.

Indeed, there were occasions of an RBI governor resigning, but there has never been so much public display of acrimony.

You were also on the RBI board.

That's your advantage.

In 1997, Bimal Jalan took over as RBI governor when the East Asian financial crisis spilled over to India.

A week later, D Subbarao parachuted from the finance ministry to Mint Road in September 2008 after iconic US investment bank Lehman Brothers collapsed, plunging the world into its biggest financial crisis.

His successor Raghuram Rajan took over in the thick of the taper tantrum when foreign investors rushed to pull out money from India.

Your move into the corner room of the RBI headquarters is equally eventful, but more complex.

It has nothing to do with the external environment.

The macroeconomic indicators are also not too bad -- inflation is low, the local currency is stable and the threat to India's current account deficit has been receding with the sharp drop in crude prices.

But there is a deep mistrust between the government and the RBI.

I have also never seen such a trust deficit between the regulator and the regulated entities -- the banks and other market players.

You soothed many frayed nerves by vowing to preserve the autonomy of the RBI and build consensus on every critical issue.

You have also reached out to the public sector bankers.

Your October 18 tweet gave me a sense of your approach to central banking: 'Central banks across countries have a very critical role at the current juncture. The challenge is to try and read the situation and take decisive steps in pursuit of their multiple responsibilities'.

Your immediate challenge is to convince the global markets that the RBI will not surrender its autonomy.

And, the public perception about the RBI's autonomy is as important as autonomy itself.

This means your belief in autonomy is not enough; you need to demonstrate that by action.

Of course, autonomy is intricately linked with responsibility.

In this context, I would like to flag off a few issues.

I won't dare to advise you or even give suggestions.

These are just few observations from someone who has been tracking the Indian central bank for long.

Central banking is a science, not an art.

By experience, expertise and intuition, most past RBI governors have done a phenomenal job. Appreciation for feedback, efforts towards consensus building and a framework for different policies will perfect that science.

Wishing you a wonderful innings,

Yours sincerely,

Tamal Bandyopadhyay

Tamal Bandyopadhyay, a consulting editor of Business Standard, is an author and senior adviser to the Jana Small Finance Bank Ltd.

Tamal Bandyopadhyay Mumbai
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