“We are neither hawk nor dove, but owl traditionally resembling a symbol of wisdom. We are vigilant when others are resting” a soft spoken Urjit Patel addressed media persons during the Monetary policy review. Unlike his predecessor Patel chose to be who is rather restricted wih the scope of his statement. The above mentioned quote is a glimpse, not just first of RBI’s history but also its continuity under Patel stewardship. Urjit Patel who was widely considered as Rajans’s ‘inflation warrior’ with will be taking over as the 24th RBI Governor from Sept 4th . Raghuram Rajan will then step and his return to academia will make way for this change. Rajan had earlier specified in his letter that he won’t be seeking a second term as the Governor of RBI. The domino effect of the announcement led to a downside trend in the market with indications that foreign investors could pull out billions from the country. This was probably a fear induced by a lack of continuity for Rajn’s robust approach to reforming the banking sector.
The BJP ruled Government appointed Deputy Governor Urjit Patel to succeed the outgoing Rajan to address this concern. Clarifying their choice of appointing Urjit as for continuity of Rajan’s tradition who was working closely on monetary policy and targeting inflation. This saga over choice of Centre for the head of the central bank brings out two questions. First , Whether the Government don’t want a UPA-appointee and second, Even if they wanted continuity in RBI why they didn’t go for Rajan’s second term instead of appointing Urjit.
Going forward with my point Rajan was a UPA appointee but so is Urjit who was appointed as Deputy Governor of RBI in 2013 and will now lead RBI for next three years from Sept 4th. Being deputed to RBI by IMF in 1991, since then he has been Consultant to both Central Government on financial matters with major being part of Kelkar task force committee for Direct taxes and Corporate bigwigs such as Reliance. Urjit Patel has a lot similarity with Rajan. Both have great credentials, graduated from prestigious universities, been a part of IMF and also advisor to Governments and are recognized globally for their hawkish stance on inflation targeting being at the top management of the central bank. However what made one being criticized and other being praised for his contributions by the same political class is their approach to work. Urjit is much known for being reticent and media shy whereas on the contrast Raghuram Rajan was known for his straight talk nature, his blatant attacks on the policies and his statement which were right on intellectual part but was being disagreed by the same political class. Rajan was transparent on what he approaches and also with his sharp intellect analysis attacked the policies of government. His statement on Make in India, reference of Dosa for the India’s interest rates, Banking performance and the NPA’s and phrasing India’s growth as “One-eyed king in no man’s land” were acknowledged globally by the academicians for being factual but were being considered as Anti-India statements and were hampering India’s image for investment because of his celebrity status and huge following. This came out as strong opposition with Subramanium Swamy doubting his nationality and attacking him on social platform terming his as not being ‘fully mentally Indian’ and requesting Prime minister to sack him. However Rajan’s decision of not seeking second term is not the reality because he wanted to clean the balance sheet of banks and clean out the bad loans which is currently lurking as dark cloud over our banking system, also to make sure the Unified payment Interface system which is his brainchild for peer-to-peer system. His appointment in 2013 inspired the kind of excitement not usually associated with the hiring of a central bank chief. However these ad-hoc criticisms against the Governor for his statements were purely inappropriate because how this makes RBI enjoy autonomous power if Government is not on same page with its head. This can be argued when D. Subbarao former RBI governor released his book Who shifted my Interest Rate also highlighting the relationship with these short term ruling parties at the Centre.
Continuity in RBI is not only the selection criteria for Urjit Patel who holds doctorate in Economics from Yale University and is a graduate of the University of London and Oxford has three decades of experience in Indian financial sector famously known for Patel committee for Monetary Policy Review which made RBI’s prime objective as inflation target . It was his recommendation to target inflation as the central bank’s primary objective and changed the main gauge for inflation to consumer price index based inflation from wholesale based price index. The Patel committee also proposed setting up of committee based approach for setting interest rate which will be held responsible if inflation target is not met. With this Govt amended the RBI act to hand over the job of monetary policy-making in India to a newly constituted Monetary Policy Committee (MPC). The new MPC comprise of six members, three from RBI (a Governor, Deputy Governor and one official) and three from Government who will meet four times in a year to decide interest rate with majority unlike earlier when interest rate was decided on multiple indicator approach. So it was Rajan’s ‘inflation warrior’ who changed the stance towards inflation targeting and making economy stable for foreign investment. It is known that like Rajan , Urjit won’t ease on monetary policy knowing the consequence of low interest rate.
This brings us to the understanding that what centre meant by continuity in RBI is that they want Rajan’s legacy to be continued by economist of same stature instead of the personality himself. Delhi wants Mumbai to go on same page and that’s the signal they gave with Rajan’s departure. Market would keenly follow Patel who is known as reticent and media shy, on whether he speaks out his mind more often than earlier. That raises questions about how Patel will approach the public aspects of a role that is set to be transformed under changes he largely helped spearhead. This is what exactly the officials in Delhi want RBI with. All eyes will also be on Patel on how he takes the bank clean up act forward, setting aside the pressure to ease the norms a bit. Rajan has set March 2017 as the deadline for cleaning up banks' balance sheet. This would require Patel to work closely with the government and become an important member of the macroeconomic management team which has the goal of maximizing employment generation with macroeconomic stability. However he is bound by the Monetary Policy Committee consultation for interest rate further. This will not make much of a difference if the Governor is the hawk, the dove or the owl.
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