New RBI Chief Unlikely Before August Meeting, Basu in Consideration: Sources – Reuters

By Douglas Busvine and Rupam Jain

NEW DELHI (Reuters) – The Indian government has reduced the urgency in its search for a new central bank governor, with a replacement for Raghuram Rajan expected to be announced only after he presides over his final policy meeting next month.

Two government sources familiar with the situation indicated that Kaushik Basu, who is stepping down as the World Bank’s chief economist, has emerged as a candidate for the position once Rajan’s term concludes on September 4.

Rajan’s announcement in June that he would not seek a second term caught investors off guard, as he had garnered considerable admiration as a former International Monetary Fund chief economist who anticipated the global financial crisis.

Initially, Prime Minister Narendra Modi’s team aimed to identify a successor in time for Rajan’s last bi-monthly policy meeting on August 9 in order to reassure investors following his unexpected decision to step down. However, one senior government official revealed that Rajan’s successor is likely to be appointed to a temporary position at the Reserve Bank of India before formally taking over, similar to the process with Rajan’s own appointment in 2013.

"I find it difficult to think that the new governor will be appointed before the policy meeting – the governor in place would become a lame duck," said the official, who spoke on the condition of anonymity due to the sensitive nature of the topic. The timing for the announcement has not yet been established.

Other candidates still in the running include RBI Deputy Governor Urjit Patel, former Deputy Governor Subir Gokarn, and Arundhati Bhattacharya, the Chair of the State Bank of India.

A close aide to Modi mentioned that it would be preferable for Rajan to complete his three-year term before his successor formally assumes the role.

The new governor will face scrutiny from investors regarding their commitment to addressing inflation—which has decreased during Rajan’s tenure—supporting fiscal consolidation, and managing the cleanup of non-performing loans in the banking sector.

Basu, whose tenure at the World Bank ends on July 31, is considered a serious contender, though his connections to the previous Congress-led government and association with Nobel laureate Amartya Sen, who opposed Modi’s election in 2014, may present political challenges.

Among the other potential candidates, Gokarn, currently India’s executive director at the IMF, and RBI insider Patel are recognized as qualified economists.

Rakesh Mohan, a former deputy governor at the RBI, was also considered, but his recent move to the United States for a role at Yale University indicated a reluctance to take on the position. At 68, he is the oldest candidate under consideration.

Bhattacharya stands out as the sole female contender and is regarded as a skilled banker, though she lacks the direct experience in monetary economics and policy that the others possess.

Speculation linking former Columbia University economist Arvind Panagariya, who holds a senior role at the government’s Policy Commission, to the RBI position has also been downplayed by sources.

The next governor will have an important role in selecting external members for a new Monetary Policy Committee, which will collectively make key decisions that are currently solely the responsibility of the RBI governor. The committee will consist of three insiders and three external members, with the governor holding the casting vote in case of a tie. Sources believe that it would be more logical for the next governor to contribute to the selection process rather than Rajan.