New RBI Governor Sanjay Malhotra Comes With An Immaculate Track-Record

Madhavi Arora, chief economist, Emkay Global, says, “This appointment indicates GoI’s comfort on having a bureaucrat rather than a technocrat at the RBI's helm.”

After a period of fevered speculation, the Union Government has appointed Sanjay Malhotra, the Revenue Secretary in the Ministry of Finance, as the RBI Governor from December 11, for a three-year term.

The decision came down to the wire, with the extended tenure of the incumbent Governor Shaktikanta Das ending on December 10, and the Government has now appointed two career bureaucrats as RBI Governor for the second successive time.

As soon as Malhotra was appointed to replace Das, the rupee fell to a record low of 84.90 in the NDF overnight and record low of 84.8075 in the OTC market.

Talking to Bizz Buzz, Anil Kumar Bhansali of Finrex said, “The market anticipated a change in policy and thus thought that the new Governor would not be averse to floating in the rupee against the dollar equation.”

However, the market forgets that the new Governor is from the finance ministry and would continue his predecessor’s policies of keeping rupee stable without changing its direction. With REER at a 107.21 high, it is expected that weakness has come to stay for the rupee. Expect 85 by the end of the month on the pair, he added.

In his bureaucratic career spanning 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.

Madhavi Arora, chief economist, Emkay Global, says, “This appointment indicates GoI comfort on having a bureaucrat rather than a technocrat at the RBI's helm.”

Malhotra is said to be 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, she said.

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, 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 It includes entrenched state of India's stagflation, tricky timings and small window of conventional rate cuts as global dynamics turn more fluid, mounting FX pressures and increasing cost of FX intervention – none of these were challenging in the same period last year.

Analysts 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.

They will keep a watch on unconventional easing measures, specifically the gradual easing of regulatory lending norms ahead, in order to re-spur the waning credit off-take.