Former Reserve Bank of India (RBI) Governor Raghuram Rajan has weighed in on a controversial debate that has plagued the institution: Are civil servants better central bank governors? Rajan's attitude? It's a tightrope.
“I don't think… certainly in my time, even though I was an outsider, we had a lot of cooperation with the government,” Rajan told The Print in an interview. He shared how working with finance ministers regardless of their political affiliations led to constructive results.
But beneath the surface lies a recurring fault line that continues to haunt the RBI-Finance Ministry relationship.
“The issue was never one of policy,” Rajan explained. “There is always a problem between the RBI and the bureaucracy.” The tension, Rajan explained, stems from structural dynamics that sometimes blur boundaries.
For example, when an RBI governor comes from the Indian Administrative Service (IAS), it can complicate the power equation. “Sometimes when the RBI governor is a senior IAS, the finance secretary is junior to them. It can create mutual respect or problems. It’s not a cast-iron fool’s errand… sometimes it works, sometimes it doesn’t,” Rajan noted.
Rajan emphasized how by designing a calibrated dose of tension between the RBI and the finance ministry, aimed at ensuring checks and balances.
But he warned that this dynamic turn was toxic. “You have to understand when stress is unhealthy,” he warned.
“If the finance ministry is informing the media in a way that is adverse to the RBI's policy stance… there are better ways of doing that,” Rajan said, pointing to the potential of bureaucratic overreach to erode the central bank's independence.
Sanjay Malhotra took over from Shaktikanta Das as the 26th RBI Governor. A Princeton-educated IAS officer with more than three decades in the civil service, Malhotra moves directly from the finance ministry where he served as revenue secretary.
His tenure saw several major reforms including rationalization of capital gains tax, change in income tax slabs and advocacy of 28 per cent GST on online gaming.
Malhotra's extensive experience includes leadership roles in Rural Electrification Corporation and extensive work in the Departments of Mines, Energy and Revenue. His appointment marks the first time since Duvvuri Subbarao that an official has moved directly from the finance ministry to the RBI.