Sanjay Malhotra: Steady Hands

PRECIOUS LITTLE IS KNOWN about the 26th governor of the Reserve Bank of India (RBI). Before he assumed office on December 11, Sanjay Malhotra was India’s revenue secretary and before that secretary in the Department of Financial Services at the Centre. His first statement after arriving at Mint Street was a boilerplate remark. “Stability in policy is very important and this is something even in my previous role we were trying to give—stability or continuity in policy—whether its taxation policy or fiscal policy or monetary policy…”

In a way, these remarks are meant to assuage markets as well as other participants in India’s economy. In this, Malhotra may not be very different from Shaktikanta Das, his predecessor, who was known for his quiet demeanour and focus on the task at hand. These are quintessential characteristics of virtually all civil servants who have worked at RBI after stints at the finance ministry.

India’s experience with flamboyant individuals who descended on RBI has been mixed. It is as much a system versus outsider issue as it is a civil servant versus economist difference. Handling the country’s monetary policy and regulating its banking system require steady hands and not some individual appeal, even if that is what the press wanted on some occasions. The fact that fiscal and monetary policy coordination has been relatively smooth under finance ministry mandarins at RBI says a lot for itself. Economists, while they have a lot to recommend for them, tend to be more rigid, more doctrinaire, when it comes to conducting policy. They often forget that there are other participants in the process. This becomes painfully evident at times.

Malhotra has inherited an economy that is slowing down even as inflation has remained elevated in the last three months. The latter has largely been due to increases in prices of vegetables and oils and fats in the food part of the Consumer Price Index (CPI). The Consumer Food Price Index (CFPI) galloped to a double-digit mark in October. The growth story is largely one of tepid demand leading to a drag in the overall growth numbers. But if one looks at the situation objectively, India’s economic growth is not bad—at all—when compared to its peer economies. Given the degree of protectionism in the world at the moment and potentially a very difficult political and economic conjuncture ahead globally, India is not doing badly. It needs to grow, at the very minimum, at 7 per cent or more but getting there is not wholly in its hand: exports matter, so do FDI inflows.

What can be done at the moment is ensuring that inflation is brought down to RBI’s comfort zone. The calls for a policy rate cut, which have grown louder in the past months, are probably misplaced for now. Malhotra remarks, “We have to be conscious of the fact that while we do maintain continuity and stability, we cannot be stuck to it, and we have to be alert and agile to beat these [new] challenges.” This remark was made against the backdrop of mounting geopolitical challenges and difficulties being experienced by the global economy.

India’s economy is just a tad short of the $4 trillion-mark in nominal terms. The steady pace of infrastructure investments and support for consumption for the poorest individuals will ensure that it remains steady but what India needs—for its security, for better livelihoods and, in general, prosperity—is faster growth and getting to a $7-10 trillion-mark. That requires a lot of work. Precious time was lost during the Covid-19 pandemic—almost two years—and the ill effects of that event slowed economic growth. There are other challenges as well. Getting to that bliss point requires, among other things, frictionless coordination between monetary and fiscal authorities. Having a system insider at the RBI is a safer bet given the turbulent global situation.

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Siddharth Singh

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