RBI chief's appointment: No clarity yet on selection panel's role

It is the Prime Minister and the Finance Minister’s prerogative on how they want the appointment process to be.

The government has left unclear the mandate of the selection committee which has been tasked to recommend names for top posts at regulatory bodies

The government has left unclear the mandate of the selection committee which has been tasked to recommend names for top posts at regulatory bodies.

This gains importance in the backdrop of mounting speculation on a second term for Reserve Bank of India Governor Raghuram Rajan.

The Financial Sector Regulatory Appointment Search Committee, headed by the Cabinet Secretary was set up more than one year ago by the Narendra Modi government to recommend names for top posts at regulatory bodies such as the RBI, the Securities and Exchange Board of India, Insurance Regulatory and Development Authority and Pension Funds Regulatory and Development Authority.

But the opinion in the government is clearly divided. While one section close to the government said the RBI Governor was unlikely to be appointed on the basis of recommendations by the FSRASC and the decision would be taken directly by the Appointments Committee of the Cabinet, others said no final decision on the selection process of the RBI Governor had been taken.

“It is the Prime Minister and the Finance Minister’s prerogative on how they want the appointment process to be.

The FSRASC is one of the ways to help in taking such decisions.

It was set up with the purpose of shortlisting candidates for positions in financial regulators,” said a senior official.

“However, no decision has been taken yet on how the political leadership wants to go about the process,” the official said.

The person added that even if the FSRASC was made a part of the selection process for the RBI governor, its recommendations would still have to go to the ACC, and hence the prime minister would have the final say on the matter.

The official did not speculate on whether the incumbent could also be among the shortlisted candidates.

Apart from the cabinet secretary, the FSRASC comprises additional principal secretary to the PM P K Mishra, and three outside experts — Rajiv Kumar of Centre for Policy Research, Manoj Panda of the Institute of Economic Growth and Bimal N Patel from Gujarat National Law University.

As per a government official, if the selection panel was indeed tasked with shortlisting candidates for the RBI top job, Economic Affairs Secretary Shaktikanta Das and Financial Services Secretary Anjuly Chib Duggal could also be special invitees to the panel.

If FSRASC ends up acting as the agency responsible for RBI governor’s appointment, then it would mean that the government has fully accepted the recommendations of the report of the Financial Sector Legislative Reforms Commission (FSLRC) on regulatory appointments.

The commission presented its draft report in March 2013, and suggested that any regulatory appointment should be done through a committee even as the final decision would rest with the government.

“While discharging this responsibility, the government will be guided by the recommendations of a selection committee,” the report had said, adding the selection committee would shortlist at least three candidates for every position and provide the list to the government.

The members of the committee would be appointed from a list of experts maintained by the government at all times, consisting of experts in the fields of finance, economics, law and public administration.

The selection committee, which would be independent, will have a representative of the government who would serve as the chairperson), “the majority of the members must be persons who are not related to the government,” to ensure “that the selection committee is not biased towards short listing only government officials.”

The committee also stated that “merit will be the guiding principle for the appointment of board members.

"Therefore, if the pool of applicants in a selection process is weak, the selection committee will have the right to suggest other names to be considered for selection.”

“If it was a completely new appointment, a committee would have made sense, but if the panel is to decide if Dr Rajan should be reappointed or not, it would mean that the present situation is too controversial for the government to take a direct call,” said Ashwin Parekh of Ashvin Parekh Advisory Services LLP.

Manish Sabharwal, chairman of Teamlease, a human resource firm, said involving a committee increases the credibility of the entire appointment and eventually that is the path to take for all key appointments.

“This is moving from lobbying black-box to meritocratic discretion. To get a lateral entry into the government, you need to bring some sort of the transparency in the process, while retaining the government’s discretion,” Sabharwal said.

“Finally the decision should be with the government. I don’t think they are outsourcing that anytime,” said Sabharwal.

The appointment panel recently conducted interviews for the post of RBI deputy governor as HR Khan’s term ends in early July.

So far, RBI governor used to head the panel for selection of deputy governor.

In the new scheme of things, RBI governor is a member in the selection panel.

In the last one year, FSRASC met several times for selection of Securities and Exchange Board of India chairman, but subsequently UK Sinha’s term was extended.

The previous United Progressive Alliance regime had recommended setting up of FSRASC for transparency in appointments in regulatory posts.