Reserve Bank of India (RBI) governor Shaktikanta Das getting an extension was widely expected but getting it for three years is both well-deserved and a pleasant surprise. Conventionally, RBI governors are appointed for five years, with the government getting an option to review the appointment at the end of three years.

The three-year extension for Das, instead of two, may well be to ensure there is a stable and experienced head in RBI when the central government goes to the polls in the summer of 2024. Had Das’s term ended after two years in Dec 2023, the new governor will barely be three months old when the government goes lame duck—not a welcome situation given uncertainties over the economy and the financial sector look set to continue.

The additional year for Das is also in recognition of the all-around excellent job he has done in hand holding the economy through one of its worst phases in recent times. Governor Das entered RBI at a time when RBI-government relations were at an all-time low. The previous governor Urjit Patel had resigned in a huff after the government issued him a direction under section 7 of the RBI Act, a provision never used hitherto.

Das’s first and most important accomplishment was to smooth out a thorny relation.

The new governor began his innings with a rate cut, which led many sceptics to believe he may be placating Delhi. The subsequent downturn in both inflation and growth in early 2019 proved Das sensed the economy winds right.

If that was beginners’ luck, the subsequent handling of the pandemic was not luck but a mix of intelligence, leadership, and courage. The proactive rate cuts and generous liquidity pumping in March 2020 showed his excellent grasp of the situation, courage, and decisiveness in the face of an unfathomable problem.

The interest waiver for nearly two quarters, the targeted release of liquidity, roping in KV Kamath to identify and resolve stressed sectors, the glide path for recognition and provisioning were all excellent decisions. That Das could lead RBI to take such bold yet measured steps in the middle of the storm speaks to his sagacity.

A bright feather in Das’s cap is the way he managed the Monetary Policy Committee (MPC). Setting the repo rate is the MPCs prerogative. To nullify the repo rate as an operational rate, and make the reverse repo operational, and get the MPC to bless this decision is one of Das’s outstanding successes. It’s not enough to get the policy right. It’s equally important to carry along institutions and people with you.

“Das’s greatest quality is his ability to listen,” said Prof Ananth Narayan of SPJIMR. His constant consultations with various groups – economists, treasury heads, bankers, industrialists reflect his willingness to be advised while retaining the prerogative to decide.

The pandemic and the economy’s challenges apart, there was the worryingly long court battle demanding banks ought not to charge interest during the moratorium period. The solution of asking the government to bear a token amount of the waived interest was a brilliant one. It cast in stone the precedent that banks are custodians of depositors’ money and depositors can’t be asked to bear a borrowers burden.

“His biggest achievement is to have managed the massive government borrowing program in 2020 and 2021,” said HR Khan, former RBI deputy governor who had himself headed the Internal Debt Management Cell at RBI many years ago.

The innovative GSAP or government securities acquisition plan, the humungous purchase of dollars and bonds to provide liquidity to a moribund economy and then to manage that liquidity adroitly all speaks to Das’s grasp of markets and his ability to get the best out of RBI.

His statement, “Yield curve is a public good,” was a bold way to talk down rates to help an anaemic economy.

Governor Das faced a fair share of criticism for his generous dividends to the government and the games RBI had to play in the forward market to garner that dividend. The relation between government and RBI is inherently a conflicting one with both looking at different time frames.

But Governor Das chose his battles. He may have relented on dividends but did not relent on the sovereign dollar bond idea. He got it killed but quietly, out of the glare of public attention.

The handling of the sovereign bond issue is the true mark of a statesman, said a former RBI veteran, who didn’t want to be named. It shows Das’s priority is to get things done right, and not to be seen as the hero who got it done.

Challenges ahead

The coming three years will have their fair share of challenges. Will RBI get it right on the timing of liquidity withdrawal? Will it stop being accommodative at the right time? Will it prevent the country from sliding back into high inflation? Will it be able to nurse the economy back to growth?

And there are challenges beyond monetary policy. Delhi May well be in favour of giving bank licences to corporate houses. Will RBI under Das be able to weather the pressure and convince Delhi of its stand?

Froth in the financial markets, cryptocurrencies and harnessing fintech for the common good without hurting legacy banks are all formidable challenges. Many of these may require international and cross-national agreements, which Das as a former Sherpa of the government may be well placed to negotiate.

As HR Khan put it, “He has proved his mettle as a wartime general; in the next three years he will have to prove his mettle as a peacetime general.”