His predecessor Urjit Patel announced his surprise resignation late Monday (10) following months of tensions with Modi's government over interference in policy (Photo: Kiyoshi Ota/Bloomberg via Getty Images).

The Indian government on Tuesday (11) named an ally of prime minister Narendra Modi as new central bank head after his predecessor quit following a row about alleged government interference.

Shaktikanta Das, named in a government statement as new Reserve Bank of India governor, is a former senior finance ministry official and a key figure in Modi’s controversial “demonetisation” scheme of 2016.

His predecessor Urjit Patel announced his surprise resignation late Monday (10) following months of tensions with Modi’s government over interference in policy.

The government was thought to be pressuring the RBI to enact policies to help spur growth ahead of next year’s elections, when Modi will run for a second term.

It was also believed to be unhappy with the RBI over issues including its handling of interest rates, how to deploy reserves and what to do about the sliding rupee.

Modi stunned Asia’s third-largest economy in November 2016 by withdrawing 86 per cent of banknotes from circulation.

The move was aimed at cleaning up India’s graft-ridden economy where large volumes of transactions are conducted in cash and therefore undetected by the tax authorities.

Critics said it caused unnecessary suffering to millions of India’s poor who operate outside of the formal economy.

Indian growth slumped as low as 5.7 per cent in mid-2017 as it reeled from the move and other economic reforms, including the introduction of a nationwide goods and services tax.

“Modi government has hired an insider who will be sympathetic to government concerns and not hold diverging opinions as the head of RBI. Unlike Patel or (predecessor Raghuram Govind) Rajan, Das will offer no independent views and was also a key member when the demonetisation decision was taken,” said Ashutosh Datar, an independent economist.

“This is extremely disappointing a choice and is the final straw in chipping away RBI’s integrity and freedom to set rates or take policy decisions,” he said.

(Agence France-Presse)

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