RBI Board appointment

The Government of India has appointed, among other people, Mr. S. Gurumurthy to the Board of Directors of the Reserve Bank of India. It is bound to send a wrong signal to the outside world on which India still depends on capital flows. It is a wrong signal not because he is a RSS ideologue, not because he is a friend of Modi, not because he is a BJP sympathiser and not because he recommended demonetisation, for the wrong reasons.

None of the above disqualify him. as FT makes it out to be.

The problem with his appointment is that he had criticised the previous RBI Governor and his policies for the wrong reasons. I had blogged on it here.

India cannot plough a lonely furrow on recognising non-performing assets as he recommends. It would be nothing short of disaster. India depends on foreign capital. India’s official savings rate and household savings rates have been declining.

India’s deposit insurance is not unique either, as he has claimed in a tweet, captured in this Bloombergquint article on his appointment.

RBI Board members do not have much say on banking regulation and on monetary policy decisions. So far, so good.

RBI Board members do not have to subscribe to Western economic orthodoxy. That it not even a remotely necessary condition for the role. But, it is enough if they are aligned with the wisdom of Indians such as Dr. Y.V. Reddy on central banking and banking regulation. That is not the case with Mr. Gurumurthy and therein lies the problem with his appointment to the RBI Board.

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