A formal announcement regarding this could be made within 24 to 48 hours.
Panagariya, who heads the government's main economic advisory body, is also India's Group of 20 summit negotiator.
Panagariya has in the past been the Chief Economist of the Asian Development Bank and a Professor of Economics and Co-director, Center for International Economics, University of Maryland at College Park.
Last month, in a surpise announcement RBI Governor Raghuram Rajan had said that he wouldn't seek another term at the central bank when his three-year tenure ends on September 4. Sources said the government also prefers an economist to a banker (Bhattacharya) at Mint Street.
Several names, including Vijay Kelkar, Rakesh Mohan, Ashok Lahiri, Urjit Patel, Subir Gokarn and Ashok Chawla, are doing the rounds for the RBI Governor's post. "It will be hard for the RBI to reduce the policy rate until a clearer picture emerges on the kharif performance and global outlook", says Rupa Rege Nitsure, chief economist at L&T Finance Holdings.
The third contender, former RBI deputy governor Rakesh Mohan, has nearly ruled himself out of contention following his insistence on a five-year term.
The government must also constitute a Monetary Policy Committee (MPC) to set interest rates by a majority vote, a change from the current regime where the decision effectively rests with the RBI chief.
If the Modi sarkar is indeed keen on Arvind Panagariya for RBI Governor position, the immediate problem it will have to face is the bureaucratic hierarchy.
Typically, it is the Prime Minister who appoints the RBI Governor after consultation with the finance minister.