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Monday, September 26, 2016

Dr Urjit Patel – The New Governor of the RBI

By appointing Urjit Patel as the 24th Governor of the Reserve Bank of India, the Prime Minister has effectively silenced the ongoing speculation over the successor to Dr Raghuram Rajan, both in print and electronic media unabatedly, ever since the incumbent governor announced his decision to step down from his position on the expiry of his term.

Dr Urjit Patel, an economist with a PhD from Yale, brings to his new assignment rich experience that spreads across diverse fields: before becoming the Deputy Governor of India’s central bank, he worked with the IMF, worked as an advisor for energy and infrastructure at The Boston Consulting Group, served Reliance Industries Limited as President of Business Development, worked as consultant to the Ministry of Finance, Department of Economic Affairs, Government of India, and worked as  Executive Director at IDFC, besides being a non-resident Senior Fellow, The Brookings Institution since 2009.

As the Deputy Governor of the apex bank, Dr Patel headed a committee on Monetary Policy Reforms that suggested a medium-term target on inflation and a glide-path for its accomplishment based on which government has already signed an agreement with the banking regulator on inflation targeting.

No wonder Jagadish Bhagwati, Professor of Economics, Law, and International Relations at the Columbia University, said: “Dr Urjit Patel is a terrific choice … a macroeconomic expert trained at Yale, Patel will be an ideal governor.”

That said, Dr Patel has his task cut out in sharpest terms and his performance will be watched with keen interest and evaluated more critically. For, unlike his predecessors, the new Governor will be facing the Government’s point of view on inflation and interest rates in a very formal setting, and steering through such an arrangement towards his set goal will not be an easy task even at the best of times. But then who is better equipped to handle this transition effectively than the inventor himself?

Incidentally, a study carried out by IMF revealed that monetary policy has not been very effective in controlling inflation in India during the study period of 1996-2014. That being the effect of monetary policy when WPI was taken as the measure of inflation, it hardly needs to be stressed that with CPI as a measure of inflation it will be much less effective, for our CPI is not as robust as elsewhere. Many are questioning if the same basket holds good for all the regions and for all types of employment across the country. This becomes more disturbing when the gap between WPI and CPI widens. And knowing the criticality of the index, the new Governor may have to get it reviewed for ensuring its right composition and weightage. 

He would also be watched by the international investors closely as to how he would handle the bad debt problem of the banking industry. And Dr Patel knows better than many that bad debts do not always mean poor credit assessment or crony capitalism. Therefore, what is needed is not over-generalization of the character of the Indian businessmen but creation of a right atmosphere for bankers where they can boldly strike a meaningful deal with the erring borrowers for cleaning up their balance sheets. This shall be pursued more vigorously, albeit by drafting a sector-wise strategy—recovery of bad debts concentrated under infra, steel, textiles, power and telecom sectors must be addressed differently.

In short, the new Governor is not only meant for ensuring continuity but also to address many new challenges that are likely to crop up such as the likely increased portfolio inflows and its consequences in terms of appreciating rupee particularly against the fact that ‘consumption-led growth’ strategy cannot  result in 8% growth rate. But the greatest strength of the new governor is: the support of the Government as is indicated by the fact of his getting reappointed as Deputy Governor earlier followed by the current elevation to Governorship in pursuit of his goal and all that he needs to do is: leverage on the new-found strength and steer the economy forward ‘silently’ with ‘head down’.

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