The Government took a bold call today announcing its decision to appoint Finance Secretary Duvvuri Subbarao, the IAS topper of 1972 batch, as the next Reserve Bank of India Governor. He will assume charge September 5 when incumbent Yaga Venugopal Reddy’s five-year tenure ends. Reddy is expected to be in New Delhi on September 3 to meet the Prime Minister and the Finance Minister before demitting office the day after.

Subbarao takes the top job at Mint Street at a time of double-digit inflation, slowing growth, an impending election year and a slew of pending reforms in the financial sector, including in the RBI itself.

Strong lobbies were actively pushing the case of Rakesh Mohan, RBI Deputy Governor, but the Prime Minister and the Finance Minister opted for Subbarao, a bureaucrat and an economist.

An IIT Kanpur physics graduate, Subbarao did his MS in economics from Ohio State University and his doctorate in economics from Andhra University. He has worked with the World Bank as a lead economist for about five years and was in the Finance Ministry during the first phase of reforms in the 1990s under Manmohan Singh as Finance Minister.

“An overhaul of the monetary management in a phased manner can be expected with a change in guard,” said a banker who did not wish to be named. To start with, there is a strong case for the RBI to stop managing the exchange rate, added another.

The current dispensation at RBI, comprising Reddy and his deputy Mohan, was also perceived to be stonewalling central banking reforms. The RBI is seen as banning almost anything it cannot manage. Many blame it for moribund corporate bond markets, a clampdown on external commercial borrowings, and resisting a real appreciation in domestic currency which has its own adverse impact on inflation.

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