The next RBI governor

If the past is any guide, Arvind Mayaram is the front runner among the three reported candidates for central bank governorship

Who will be the next governor of the Reserve Bank of India (RBI)? The search is on as the present governor, Duvvuri Subbarao, will complete his tenure in about eight weeks from now. Three names that appear to be under consideration are: Planning Commission Member Saumitra Chaudhuri, Economic Affairs Secretary Arvind Mayaram and Chief Economic Advisor Raghuram Rajan.

All the names, according to newspaper reports, have strong backers. Any one of them could be named the 23rd governor of the RBI. There is yet another theoretical possibility, though. If there is no consensus on any one of these three names, the government may well consider the option of giving Subbarao a year's extension, so that the next government after the elections could take a considered view on the matter. But that option is not likely to be exercised as the finance ministry's relations with the current governor have not been smooth.
 

So, what are the chances of the three candidates in the race? It is difficult to predict at this stage who among them will make the grade. But the past is often a good indicator of the future. Of the 22 RBI governors (including the present incumbent), as many as 14 had a civil services background, although, that is not how the central bank began its journey in 1935. Sir Osborne Smith, the RBI's first governor, was a professional banker. Smith did not complete his tenure of three and a half years and left the RBI at the end of June 1937, paving the way for a long list of civil servants to succeed him at Mint Road, headquarters of the central bank.

From 1937 to 1975, 10 civil servants were at the helm of the RBI. Of these, seven were members of the elite Indian Civil Services (ICS), two had long stints in different departments of the government including those in the ministries of finance, commerce and industry, and one (P C Bhattacharya) belonged to the Indian Audit and Account Service.

Although the Indian Administrative Services (IAS) was formed in 1946, no officer from this cadre became an RBI governor in this period. Indeed, the wait for an RBI governor from the IAS would continue a little longer as the 10-year period from 1975 to 1985 belonged to the economists and bankers. This was the time when I G Patel and Manmohan Singh (who had worked in the government but were better known as economists) were at the helm of the RBI. This was also the time when M Narasimham became the governor - the first and the only officer from the RBI cadre to have so far occupied that post.

The first IAS officer to take charge of the RBI was R N Malhotra in 1985, followed by S Venkitaramanan. C Rangarajan and Bimal Jalan gave a short break of about 10 years when the RBI went under economists once again. The IAS returned with Y V Reddy and Subbarao, although it could be argued that Reddy had joined the RBI having discarded his IAS tag a few years ago.

So, what does the past tell us about the chances of Chaudhuri, Mayaram and Rajan? One, a civil servant is more likely to be preferred for the RBI governor's job. It, of course, helps the civil servant if he is also an economist. Two, experience of having worked in the Union finance ministry improves that chance. Consider the statistics. Of the 22 RBI governors, as many as 12 worked in the finance ministry before they moved to Mint Road. These included all the four IAS officers, two ICS officers, two non-IAS civil servants, two economists (Patel and Singh) and the lone RBI cadre officer (Narasimham), who all later became RBI governors. Three, only two of the governors have had a stint with the Planning Commission.

Going by this, Mayaram is clearly the front runner. He is a civil servant and has the experience of having worked in the finance ministry. More importantly, he understands the present finance minister's mind on monetary policy and his well-publicised need for early release of licences for new banks. He is not in the same mould as Reddy or Subbarao, and is more like Malhotra or Venkitaramanan. But should that be held against Mayaram?

Rajan, too, is in the finance ministry and is an accomplished economist. But his limited experience in the government may go against him. Chaudhuri, an economist, has never been in the finance ministry and his experience in the government is also limited only to his stint in the Planning Commission.

If the government finally chooses Mayaram, it would be clear that it has chosen not to deviate from the past pattern of preferring the civil servants in steering monetary policy. And if you see either Rajan or Chaudhuri at Mint Road, make no mistake in concluding that the choice is more a comment on Mayaram than on the suitability of either of the two economists.