After a period of fevered speculation, the GoI announced the appointment of Sanjay Malhotra, presently the Revenue Secretary in the Ministry of Finance, as the next RBI Governor from 11-December, for a three-year term. The decision came down to the wire, with Governor Shaktikanta Das’s tenure ending on 10-December, and the GoI has now appointed two career bureaucrats as RBI Governor in a row. In his bureaucratic career of 33 years, Malhotra served in sectors spanning power, finance, taxation, IT, and mining. He is a 1990 batch IAS officer from the Rajasthan cadre, with an engineering degree in computer science from IIT Kanpur, and a Master’s in Public Policy from Princeton University. Prior to his appointment as Revenue Secretary, he was Secretary in the Department of Financial Services (DFS); his other prominent prior roles include CMD of REC, and ex-officio Secretary to the GST Council.
■ This appointment indicates GoI comfort on having a bureaucrat rather than a technocrat at the RBI’s helm. However, this also means that the post of Revenue Secretary has been vacated at a pivotal time, just as discussions for the FY26 Union Budget have begun, wherein the Revenue Secretary plays a major role. The GoI will thus need to fill that position imminently, to ensure minimal disruption to the planning and execution of the Budget.
■ Our initial discussions with some senior bankers indicate that Sanjay Malhotra is straightforward in policy communication, and in his past role at the DFS, he would push banks to adopt and focus on technology. That said, we also note he has taken tough taxation decisions relating to capital markets. The changes/harmonization in capital gains tax treatment, with removal of indexation benefit for real estate and debt MF gains, among others, were all implemented during his tenure as Revenue Secretary. However, interestingly, he has taken cognizance recently of the negative impact of excessive tax compliance/notices on business activity.
■ Besides all this, new year 2025 is going to see a new MPC composition, with three newly appointed external MPC members in Oct-24, who will now be joined by the new Governor and possibly a new Deputy Governor in Jan-25 (with Dr Patra’s tenure nearing its end).
■ Interestingly, the new Governor and MPC will also have substantially different policy challenges as well as macro and global landscape while stepping into CY25 vs what the Das-led regime faced at beginning-CY24. The policy trade-offs are getting acute: 1) entrenched state of India’s stagflation, 2) tricky timings and small window of conventional rate cuts as global dynamics turn more fluid, 3) mounting FX pressures and increasing cost of FX intervention – none of these were challenging in the same period last year.
■ We do not, for now, rule out a cut in Feb-25, but would be more comfortable taking a firm call closer to the policy window. We also keep a watch on unconventional easing measures, specifically the gradual easing of regulatory lending norms ahead, in order to re-spur the waning credit offtake.
