New Delhi: In an unprecedented move, the Narendra Modi government Saturday appointed former Reserve Bank of India (RBI) governor Shaktikanta Das as Principal Secretary-2 to the Prime Minister, making his appointment coterminous with the prime minister’s term.
This is the first time that there would be two principal secretaries to the prime minister since this position was created. P.K. Mishra, who has been serving in this role since September 2019, will continue to hold the position.
It is learnt that Das has been appointed in addition to Mishra due to the latter’s advancing age. Even at the beginning of the Modi government’s third term, Mishra had requested to be relieved from the position, but then stayed on due to the prime minister’s insistence, a senior official in the government said.
“He (Das) is a finance and economics person through and through. His appointment signals that economic policy-making would be the focus of this government in this tenure,” the official said.
Das, an IAS officer of the 1980 batch of the Tamil Nadu cadre, completed his extended term as 25th governor of RBI in December last year. He has also previously served as the finance secretary and a member of the 15th Finance Commission before moving to the RBI.
As the finance secretary, who presided over the planning and execution of the demonetisation drive and the rollout of the Goods and Services Tax (GST), Das gained the complete trust of the establishment—something evident in his appointment as the RBI governor days after Urjit Patel abruptly resigned from the post.
He went on to hold the position of the RBI governor for six years, making him the second longest serving central bank chief in history.
“His appointment to the RBI came when the relationship between the RBI and the government had hit rock bottom,” a former finance secretary said. “Among the many other things he is credited for, one of Das’s most lasting contributions is to bring back balance in that relationship, and deliver instead of squabbling.”
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The importance of being Das
Das’s appointment to the RBI came after the rocky tenures of two celebrity economist-central bank governors—Patel, his immediate predecessor, and Raghuram Rajan.
“When he (Das) was finance secretary, he would often call up Patel and Rajan, and quietly fix matters behind closed doors,” the finance secretary said. “Actually, enough credit isn’t given to him, but it was because of him that the relationship between the government and the RBI remained in control until 2017…It only flared up after his retirement.”
“He has always been very mild-mannered and gets things done without being confrontational,” an IAS officer, who has worked under him, said. “Besides, he is an expert in his own right. He is hardly a generalist—he has been in the finance ministry since 2008.”
In this period, Das worked under P. Chidambaram, Pranab Mukherjee and Arun Jaitley—thereby playing an important role in the preparation of at least eight Union budgets, four as joint secretary and additional secretary in-charge of the budget division, and two each as revenue and department of economic affairs secretary.
“As someone presiding over the planning of the GST, he was responsible for negotiating a five-year compensation plan for states, and amending the Constitution for the GST—it was no mean task,” said the officer. “I think the government saw him as a doer.”
From drafting the Insolvency & Bankruptcy Code to defining the contours of the Fugitive Economic Offenders Bill—Das has handled several of this government’s key economic policies.
‘Stellar legacy’ at RBI
Back in 2018, when Das was appointed the RBI governor, there were two crises at hand, explained the former finance secretary.
First, the relationship between the North Block and the central bank was strained. After years of aggressive inflation targeting, the finance ministry and the RBI (under then governor Urjit Patel) had come to loggerheads about the ideal interest rate at a time when the economy was experiencing a slowdown, he said.
This episode ended with the government reading the riot act to RBI, signalling who was the “final boss in town”, and a couple of months later, Patel put in his papers, he added. Central banks are ideally supposed to be autonomous, and back then, RBI’s status as an independent body was under question.
“The second crisis was to do with Das’s own baggage,” the former finance secretary said. “Patel and Raghuram Rajan were trained economists. With the appointment of Das, the central government was reversing the tradition of having retired civil servants as RBI governors, which was seen as basically the government getting the RBI to do its bidding.”
Das’s past as the finance secretary during the conceptualisation and execution of demonetisation was another problem. “The unusual policy decision not just stunted India’s nascent growth recovery in late 2016, but also cast a dark shadow on Das’s credibility,” the retired finance secretary said.
“But six years on, Das went on to be the second-longest serving RBI chief and left a stellar legacy behind him, and that’s that.”
Das anchored India’s monetary policy through the critical COVID-19 era and played a leading role in ensuring the post-pandemic recovery. During his second tenure, the Indian economy consistently recorded over seven percent GDP growth rate.
More significantly, as the rest of the world reeled with runaway inflation in the aftermath of the pandemic induced supply chain shocks and pent up demand, India managed to duck the trend. While he did leave the office with a slightly elevated inflation than desired, under his second tenure, the growth-inflation trade-off was significantly minimised, allowing the Indian economy to deliver healthy growth.
Consequently, in 2023, Das was awarded the best central banker of the year in 2023 by the Central Banking Awards.
(Edited by Mannat Chugh)