After lots of speculation, the new governor of the Reserve Bank of India has been announced. It is D. Subbarao, currently the Finance Secretary, or one of the most senior civil servants in India. Like outgoing governor Y.V. Reddy, Subbarao is a member of the elite Indian Administrative Service. The other two top contenders were Montek Singh Ahluwalia, who will no doubt stay as Deputy Chairman of the Planning Commission, which give him a higher rank than the RBI governor (cabinet minister rather than one notch below). Rakesh Mohan, currently a deputy governor, will, according to predictions, move to the IMF or World Bank. Likely replacements for Mohan as deputy governor are chief economic advisor Arvind Virmani or former senior RBI official Narendra Jadhav, currently vice-chancellor of Pune University.
Subbarao also currently simultaneously holds the position of secretary, Department of Economic Affairs. According to the Business Standard, “Ashok Chawla, currently civil aviation secretary, may be appointed secretary, economic affairs. Chawla was additional secretary, economic affairs from April 2005 to January 2007.” The newspaper also reports that “Sindhushree Khullar, currently additional secretary in the department of economic affairs, has been empanelled to pick up the secretary rank.” Presumably that means she will shift to another charge, away from Economic Affairs.
What will all this mean? This game of musical chairs does not have a diminishing number of seats, so there is always the possibility that new blood and new ideas enter the policymaking arena as a result of Governor Reddy’s retirement. The Wall Street Journal earlier quoted Percy Mistry, head of an important committee that reported on making Mumbai an international financial center: “Percy Mistry, chairman of Oxford International Group, a financial-services firm with offices in the U.K. and Mumbai, said the central bank takes a conservative approach to many of its duties, and as a result it constrains competition and innovation in the financial system. It has been reluctant to allow sophisticated financial instruments and markets to develop, and it hasn’t pushed for the privatization of state-owned banks, insurance companies and pension funds, he said.”
Maybe Subbarao will fit the bill. According to the Business Standard, “Widely seen as a reformer, he [Subbarao] is credited with having authored a turnaround of Andhra Pradesh’s finances in the late nineties when the state slipped into an unprecedented fiscal crisis.” The Economic Times has a similar view: “Mr Subbarao, in contrast [to Dr. Reddy], is reckoned to be less hesitant on some key structural changes proposed for the central bank, making monetary policy its sole focus, divesting other functions such as public debt management and supervision of the banking system.” Presumably, Subbarao will also work closely with the Finance Ministry in his new job. That might be at odds with recommendations for greater central bank independence.