The inside story – Why did Modi pick Das for RBI Governor

An objective look at what went into the choosing of Shaktikanta Das as the Governor of RBI

Was his trustworthiness that tipped the scales in favor of Das?
Was his trustworthiness that tipped the scales in favor of Das?

So the new Governor of the Reserve Bank of India (RBI), Shaktikanta Das is not an Economist by training or education. Yet, Modi saw something in him that made him eminently suitable for the post of Governor. Team PGurus dug deep to find out the reason and here is our diagnosis. Some dots have been connected and the t’s have been crossed and i’s dotted.

RBI dividend to the Government

Every year, around August, the RBI pays a dividend to the Government. This year it was Rs.50,000 crores, paid in the month of August[1]. This was 63% higher than the previous year, which was Rs.30,569 crores. But in 2016, RBI had paid out Rs.65,876 crores. The shortfall in 2017 was explained as being due to the cost of printing new currency notes, following demonetisation.

Why did Urjit Patel resign?

The amount of reserves at the RBI is around Rs.10L crores (ten lakh crores). A dividend of 50,000 crores would be about 5% of the reserves. Now the world over, the Central Banks keep around 70-75% reserves. The formula is complicated so we will spare you the details. The RBI was playing it conservatively and keeping 95% of the reserves.

Two weeks ago, a report by the Bank of America Merrill Lynch (BoAML) suggested that the surplus with the RBI currently is between Rs.1 – 3 Lakh crores and that could be transferred to the government[2]. The Modi government wanted to use this surplus to fund some of its initiatives and Patel was allegedly not allowing it. This has been going on for a while and when the BoAML report came out, the Government perhaps pressed the issue with the RBI Governor, who decided to quit, rather than sign off on it.

Why was Patel not allowing it? For this, we need to go back to the days of Demonetization.

Demo decision was taken on Feb 19, 2016

It is reliably learnt that the decision to demonetize the Rs.500/ 1000 notes was taken by the Prime Minister (PM) on Feb 19, 2016. RBI had to be notified so they could print the new Rs.2000 and Rs.500 notes. They had nine months to do it. Raghuram Rajan was the RBI Governor at that time. Despite his alleged closeness to the former Finance Minister P Chidambaram, Rajan did not disclose this to him. Nor was Arun Jaitley told. At least in this case, he acted with integrity.

Who knew about Demo?

A war room was created in the house of PM Modi where a select group assembled to work on this project. A group of six worked day and night on this[3]. Some of them were from the Ministry of Finance and they did not even tell their boss, the Finance Minister! We are going to name a couple from this group of six here – Hasmukh Adhia and Shaktikanta Das. One was the Revenue Secretary while the other was the Secretary of Economic Affairs. Demonetisation was to have been done on November 18th but it was brought forward by 10 days and announced on November 8th.

November 8th – Demo Day

Modi recorded his speech for the nation about six hours before the announcement. The Cabinet convened around 7 PM and by 7:30, the resolution to have Demonetisation done was passed. All the ministers were in a room while the PM went to inform the President. The recorded speech was telecast at 8:15 PM by Doordarshan and other channels. All channels were told to standby for an important telecast by the PM. Since it was around the time of Surgical Strike, all channels were thinking that something serious was going to happen with Pakistan/ China. The Demo announcement came as a complete surprise. Officials must be commended for keeping this a secret till it aired.

That Arun Jaitley did not know of this is proved from a couple of incidents – he was to leave abroad on the 7th of November but was told by the Cabinet Secretary to cancel his trip and that an important meeting was scheduled for the following day. Why he was not informed? Did PM know that if AJ knows, then Chidambaram will know and then Congress and so on?

Naresh Agarwal let the cat out of the bag, when he asked Arun Jaitley in the Rajya Sabha, “How come you did not whisper this in my ear?[4]” Even though he referred to himself, he actually meant P Chidambaram!

Shaktikanta Das, while keeping Jaitley in the dark, signed deals with Currency note manufacturer De La Rue of UK, for printing new Rs.500 and Rs.2000 notes.

The Demonetisation announcement caught Sonia Gandhi by surprise and she was livid at Chidambaram for not knowing it.  Clearly Congress too was a victim of the sudden announcement.

Why didn’t the FM resign?

The Finance Minister had no clue this was happening – his own secretaries did not tell him. If Jaitley had any self-respect, he would have resigned – the PM had done an end run around him. The PM trusted his subordinates but not him. He should have said, “I am slighted – I resign”. That would be principle-based Politics. But what can a man who has never won a Lok Sabha election do except sulk and lump it? Well, he did do something…

To pre-empt what played out, it was suggested that an Income Tax (IT) Officer be posted in every bank and take video of all the receipts coming in. This would have been akin to seeing the Ghost for the tax offenders as IT officers know most of them. It would have also made the task of the IT officers easier for processing the fake notes later (a lot crept in). But Jaitley put his foot down and did not allow it.

In all their planning, the six wise men did not remember or underestimated the work ATMs have to undergo, to support the new sizes. And ATM technicians are few and far between (about 4000 in the whole country) and it takes up to 5 hours to fix one machine. Clearly they could not be told of the changes ahead of the announcement.

One other critical error was not checking the daily remittances of old notes being deposited in the banks. Corrupt Bank officers made a killing accepting notes with 10-30% commission from Black money holders. It took two years to count and profile the data on the old notes returned. And we still don’t know how much of it was counterfeit.

Das was changing the rules on a daily basis while Govt. was also fire fighting with many politicians who owned Co-operative Banks.

Thus, the implementation collapsed and now almost all the black money is back in the system. Urjit Patel was a bystander as this played out and was hauled over the coals by the various Parliamentary Committees and Right to Information (RTI) requests.

Back to SKD

PGurus had written about the two finalists that it saw as the candidates for the RBI Governor (one of them was Das)[5]. Even though Das is considered close to PC and has some corruption charges, perhaps the PM thought him the best choice as he proved that he can keep a secret and do as he is told. Patel, considered a Mukesh Ambani man, perhaps wanted to ensure that the sops do not go to the needy and make it easy for Modi to come back to power in 2019.

Expect the money to flow from RBI. The government may want to spend it on sops before the 2019 elections. We can understand it if this money is spent to re-capitalise say the top 10 healthy banks. Whether it is for sops to people or banks, only time will tell.


[1] RBI to pay Rs 50,000 cr dividend to govt for FY18, in line with Budget estimateAug 8, 2018, Economic Times

[2] RBI can transfer Rs.1-3L cr surplus to govt: ReportNov 27, 2018, Times of India

[3] Demonetisation: Who knew? Modi’s black money move kept a closely guarded secretDec 9, 2016, India Today

[4] Naresh Agarwal’s speech in Rajya Sabha, Nov 24, 2016, RS TV

[5] Choose wisely, Mr. ModiDec 10, 2018,

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  1. Dear Sree Iyer Ji,

    In this article you have stated that Rajan as the RBI governor approved Demonetization. But, Gurumurthy ji in one of the interviews mentioned that R3 was out of loop and would have never agreed to plan of demonetization (link below). Can you please clarify on this point.

    Thank you

  2. Ex-RBI Governor Rajan says he had forwarded a list of Fraudstar, not defaulter. Before he retired as Governor,
    then why “Modi” is not taking significant & remarkable Action if he is 100% Honest (Realistically) or Not.

  3. You seem to have misread Naresh Agarwal’s statement. Other than Arun Jaitley, rest of cabinet ministers are afraid of even talking to opposition leaders. He was pointing to Ravi Shankar, who is too afraid to say anything to them.

  4. So according to PGurus PM never looks for subject matter expertise for a key position and looks only for a loyal Yes man who will maintain secrecy. Very promising. Very hopeful.

  5. A basic logic that all fiction writers and readers miss across the spectrum, whether the so called intellectual or otherwise.

    Money saved is money earned and it’s also commonsence that to run any country you need money. When your country has deficits and tons of debts, decades of legitimate spending on defence, infrastructure, education, etc., pending, . . . then you require even more money.

    With 7th Pay Comission recommendations out to rob all money available, the need for money further grows exponential. Other commitments like OROP (2% less than what our military expected to be appropriate), universal health insurance, crop insurance, multifold increase in land compensation for infrastructure, loan waivers puts money as top priority for Modi government to function and deliver.

    AJ has made availability of all this money possible by plugging the historical leaks in Petrolium product subsidies and Defence purchases, where every spend and loot is multi-million.

    Love him or hate him, . . . . do whatever . . . . no reform or investment in infrastructure or OROP or Defence purchase could have happened without this Arun Jaitley who not only understands law and legal contracts but also knows how to stealthy manage the systems, institutions and its officers, to deliver without any retaliation whatsoever.

    All this and more, Jaitley has managed with clear knowledge that he remains the most hated minister of all times since he almost singularity shoulder to shoulder with prime minister, ministers and very few officers, contained corruption and corrupt individuals everywhere, . . . so journalists, media houses, lawyers, administrators, judiciary have become most disgruntled for forced correction of their habits.

  6. Although Modi knows very well about AJ, he looks helpless. The best thing would have been to get Dr Swamy as the FM and deal the final blow to PC, AJ and the Scamgress.

  7. I am waiting for Pgurus publish an article for why Jaitley has so much prominance in BJP though he is not a vote puller? Even if it is imagination, that is fine. I want to know. Now, the rupee swing in the days to come will tell if SKD is playing for or against Modi.

  8. Nicely written article, I have read some comments stating its an act of fiction or gossip. I think its great info which answers many questions regarding what has been happening on the financial front for past few years. Really informative article. Pgurus should keep up their bold analysis.

  9. Horribe Article. Pgurus is a 200% Gossip website . Always speculating, bullshit articles.
    One day this “Pathetic-Gurus” will soon write an article saying FM Jaitley is perhaps a saint or close confidante of Modi,Swamy et al playin a perfect plan etc..
    I almost deleted my comment myself , didnt want to write but then for sake of gullible to create awareness to shun/avoid this crap gossip/rumour mongerers website

  10. It appears from this article that Modi is more then capable to handle the national assets including that being held as reserves with RBI. The next 6 months will reveal Modi’s mettle as a PM of immense quality. After all Modi inherited a UPA system and also an infiltrated BJP. The task would have been insurmountable but not for Modiji’s character and strength. If Shakthikanda Das is made a RBI governor, then Modi seemed to have readied himself to pull the thorn out with a needle. Arun Jaitley has to now make a choice on his tenure now as S. Das would most appropriately shift his allegiance to Modi, thus creating a very in-conducive environment for AJ. The greatest moment for India would be if Dr. Swamiji gets elevated to the position of FM, a moment of truth for India, as any dividend, more then the past, be paid to the government, would give a huge boost for India’s development. A Modi-Swamy partnership would be unbeatable.

  11. After watching BJP lead NDA government 54 months in Office and PM Modi’s performance and preferences in appointing tainted or UPA1 & UPA2 Bureaucrats and other chums, I feel that it is better if Modi takes PC into his cabinet as Finance Minster !!!!!!

    Nobody understands PM Modi-Shah-Jaitley mindset and future strategies. During past four and a half years they have succeeded in bring corrupt and congenital liar Rahul Khan Gandhi on “center stage”. Further proved that it’s difficult and takes decades to root out corruption in India hence, started to promote corrupt bureaucrats giving starting initial advantage to UPA /Maha-Thugs Bandhan. Cong-I always starts with 15% committed vote bank.

    Modi-Shah initially proved invincible but now looks like amateurs!

    BJP is loosing its core vote bank and Modi does not like Quality in his governance. Modi has done injustice to massive 282 LS Seats given by us in the Indian political history. Let us hope after 14th January 2019, BJP mindset may change for the better.

  12. The money from RBI must be used to win elections in 2019. Otherwise the power will go to Congress or Rainbow Coalition. Modi must act now to save BJP government at any cost. Period.

  13. Good story. PGurus is slowly turning to writing fiction. Time to reduce the visit here. The best part is modi realising that urjit is mukesh ambani man now. It is not hard to fath though that mukesh ambani does not prefer modi to congress and much of fin strength for opp comes from him. Pappu speaking daily about ambani makes it more obvious as he tries to make people believe that he is not pro Ambani. Corruptions strength does come from the biggest of them all is known.
    But on Das, baring Swamy’s persistent accusation and hatred of him nothing could be proved. Same for Jaitley and aadhia. This entire article has little of das integrity issues expired which pgurus throwing their blond belief in swami had always written. So I guess while swami May nail chidambaram in some case or other it is questionable if all accusations made against him can be ever proven. Das’s case is similar too. If urjit is ambani man, are the objecting deputy guv in say viral Acharya etc also ambani man? This is where the fiction writer has to stop.
    If this swamy’s Battle stay clear. He is brilliant, nationalist but certainly can cook up theories to fight his innumerable ego battles. Cant take his fight and see truth in it always and weave fiction around it.
    Das’s case is an example.
    I see same with mahinda rajapakshe. Swamy wanted India to jump and embrace him. Swamy was running some parallel foreign office of sorts. Lucky modi thinks broader as we see in the last 6 weeks. PGurus zealously carried that fiction too on Swamy’s behalf perhaps.

    Truth and facts help more than fiction. If das’s Closeness to PC can be proved to have the smell of corruption you must throw the accusations here with details like for PC and B.C. assets links bank account etc. you cannot as there May be none. Das’s loyalty to his present master makes Swamy hate him at best is My conclusion. Rest os fiction and for that PGurus need not be a source.

    • Swamy does it in best interest of the nation. So does Sree. Even if this is a piece of fiction, they try to do something good for the country.

  14. Patel, considered a Mukesh Ambani man, perhaps wanted to ensure that the sops do not go to the needy and make it easy for Modi to come back to power in 2019. Is there some thing wrong (Print) with this statement .

    • Mr. Jasitly is more qualified and well status man with elite crowd around him. But people voted only for Modi not for Jaitly or any other BJP politicians for that matter.


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