The New RBI Governor

he government has finally issued the notification ap-pointing Mr. Sanjay Malhotra, Secretary of Finance, Government of India, to serve as Governor of the Reserve Bank of India for the next three years to come. Earlier there were news forecasts that the tenure of Shri Shakti Kanta Das would be extended for another term.

That would have made him the longest-serving RBI governor, just after Sir Benegal Rama Rao (from July 1949 to January 1957), who served the central bank for a long seven and a half years. Shri Das’s usual tenure of three years was already over, and the present term of six years in the office was to end on 10th December 2024. There was indeed some expectation from the part of the government about the usual rate cut responding to the prevailing inflationary condition and low growth rate during Q2 of the current fiscal year.



But the bank’s six-member body, the Monetary Policy Committee (MPC), stressed continuing with the prevailing repo rate with some change in cash reserve ratio. Such friction between the government and the bank is a usual scenario, and the government wanted to make sure that in the next meeting of the MPC (slated for February next), some major steps be taken to stabilize the inflationary condition and at the same time the growth rate of the economy. Shri Malhotra has taken over the charge of the bank on the 11th of December.

The outgoing governor wished him well and also the team of officers he left behind. Sri Malhotra, who is an IAS officer of the 1990 batch of the Rajasthan Cadre, joined the Ministry of Finance as Secretary in December 2022 and served the Department of Revenue for two years. He is described as in good books with the finance minister.

During this stint in the Finance Ministry, he also looked after the Department of Finance Services. Unlike his predecessor, Sri Malhotra’s finance connection is not too long a period to gather sufficient knowledge about the functioning of RBI. So, the environment in the office at the Mint Road at Nasik would be new to him.

He joined this new assignment at a time when he is to address the critical issues of slow economic growth, rising food and general inflation, and falling rupee in terms of the dollar. On the day of his appointment, the rupee hit an all-time low of Rs 84.83 at the closing of 10th December 2024.

Interestingly, records show that almost all the all-RBI governors in the recent past had faced not a rosy day when they entered this office. Shri D Subba Rao, who entered office in September 2008, had to face the heat of the western meltdown global depression and had to cut the rates substantially. Within a period of six months, he cut the repo rate from 8.

5-9 percent to 3.5 percent, about 67 percentage points. Equally, there were cuts in other rates too.

Assuming the charges of the office as the 16th Governor of the RBI, Mr. Malhotra said that the central bank will follow a policy of maintaining stability and continuity but will remain alert and agile to respond to the emerging situation. This indeed is a clever remark indicating that the bank will make an effort to maintain the status quo but also will not ignore the demands of the economy.

He stressed adopting a consultative approach with the stakeholders. He spoke about the policy stability—be it taxation, fiscal, or monetary policy. But nowhere did he mention the situation where policy dynamism is a must.

The situation that is facing us is a kind of crucial one, having to manage, on the one hand, the inflation rate, where the consumer price-based inflation (retail inflation) has been staggering at 6.21 percent, and on the other, the GDP growth rate, which is falling to the level of 5.41 percent in the last quarter—a situation where a policymaker cannot perhaps remain silent with a stable monetary policy waiting for the volatile macroeconomic variables to stabilize.

The government has undoubtedly been strained with the latest monetary policy and is looking forward to a rate cut to put the economy on a consistently good growth trend that is also sustainable. And this is to be done as quickly as possible. This is not unknown to the central bank operators who are at the helm of the affair.

The government stance for a rate cut for easy interest rates and encouraging an expanding volume of economic activities has been doubly conveyed to the Central Bank when the Commerce Minister Piyush Goyal and Finance Minister opened up their minds about the rate cuts in two separate public meetings. First, in the November 14th meeting, the commerce minister categorically stated that “I certainly believe the central bank should cut interest rates. Growth needs further impetus.

It’s absolutely a flawed theory to consider food inflation while deciding interest rates.” In the recent monetary policy, however, the RBI made it clear that food, of course, constitutes 45.9 percent of the retail inflation basket, and the RBI believes that it is central to its price control objectives.

In another instance, on November 18, the finance minister in a Mumbai meeting expressed that “the cost of borrowing is really very stressful. At a time when we want industries to ramp up and build capacities, bank interest rates will have to be more affordable. These were, if not directly, indirectly a dictate for the RBI to follow.

They have indications that are from being enough to read the mind of the government, who were advocating rate cuts in the monetary policy announced in the last week by the RBI. In that policy, the RBI revised the cash reserve ratio (CRR) downward from 4.5 percent to 4.

0 percent but preferred to keep the other rates continuing. But it had changed its monetary policy stance from “withdrawal of accommodation” to “neutral.” Giving more flexibility to the MPC to decide which direction it will go in the next review meeting slated for February.

This, in other words, he kept open the door for his successor to exhibit his own stance..