The government has narrowed its list of candidates to become the next governor of the Reserve Bank of India to four and a new Monetary Policy Committee will be appointed soon, a senior official told news agency Reuters.
The moves seek to ensure policy continuity and reassure domestic and global investors after RBI chief Raghuram Rajan shocked markets 10 days ago by saying he would not seek reappointment in September.
Mr Rajan, a former IMF chief economist, had been accorded rock-star status by markets for defusing a currency crisis, lowering inflation and winning parliament’s approval to set up the policy committee which will set interest rates.
Sending a reassuring signal, the official said the list of candidates to replace Rajan had been whittled down to four – three of them central bank veterans; the other the head of the country’s largest commercial bank.
The four were current RBI Deputy Governor Urjit Patel, former deputy governors Rakesh Mohan and Subir Gokarn, and State Bank of India Chair Arundhati Bhattacharya.
None have commented, though media have reported Ms Bhattacharya may get a one-year extension in her current job.
Analysts said a lack of transparency over the selection process was a worry, and it would be important to ensure Mr Rajan’s successor is strong enough to uphold the RBI’s autonomy.
“For the continued credibility of a strong and autonomous institution like the RBI, I hope the next governor is someone independent like Rajan, and not more pliable to the government,” said Shumita Sharma Deveshwar, co-head of India research at Trusted Sources, a macro advisory firm.
The official, and another from Prime Minister Narendra Modi’s office, said Rajan was expected to join the search committee to appoint three external members of a new six-member RBI Monetary Policy Committee.
The objective was to ensure that the MPC is constituted as soon as possible, before the appointment of Rajan’s successor, both officials said, speaking on condition of anonymity due to the sensitivity of the matter.
“We are very hopeful the present governor will be a member of this search committee,” the first official said, adding that if all goes well the new panel would be formed by Aug. 1.
If that timetable holds, it would mean the MPC will be in place for the last policy meeting chaired by Rajan in August.
It would be desirable if Rajan is on the selection committee “given his international experience and the fact that the new monetary policy framework became operational under his intellectual leadership”, said Rupa Rege Nitsure, group chief economist at L&T Financial Services in Mumbai.
Rajan’s decision to stand down followed weeks of attacks by maverick politician and Harvard-educated economist Subramanian Swamy.
Swamy memorably described Rajan as “mentally not fully Indian” in an open letter to PM Modi, demanding the governor’s immediate termination. He was seen as venting views widely held in the Rashtriya Swayamsevak Sangh, the ideological mentor of the ruling BJP.
A senior RSS source expressed support for the slate of candidates, however, indicating the group would prefer a more low-profile, Indian-educated governor than the outspoken Rajan but is not bent on forcing a more radical policy shift.
Under the finance bill passed this year, three members of the MPC would be RBI insiders, headed by the governor.
Three external members would be chosen by a search committee comprising Modi’s cabinet secretary, the RBI governor, the secretary of the finance ministry’s department of economic affairs and three outside experts chosen by the government.
The governor would have the casting vote in the event of a 3-3 split.
Deputy finance minister Jayant Sinha said he expected a new governor to be named within weeks. The RBI said it was not in a position to comment.