RBI Governor Urjit Patel- “Old Wine in New Bottle”?

Urjit Patel, who assumed office as RBI’s deputy governor on 11th January 2013, was appointed as the 24thGovernor by the Government with his term beginning on 4th September, 2016.

Why Patel?

The government had a set of criteria that would form the basis of selection of the next RBI governor. Firstly, the person should have firsthand experience of the Indian economy’s past and present. Secondly, he should have understanding of a global view so that the Indian economy can be integrated at a global level. Third and most importantly, awareness of the biggest challenge of the Indian economy- the banking sector.

Patel is the person responsible for institutionalizing the inflation targeting regime in the monetary framework. The Committee he headed suggested a target inflation of 4%, with a fluctuation of 2% on either side. These recommendations got government approval as well as legal backing. The Monetary Panel held by him proposed that inflation targeting be done on the basis of the Consumer Price Index, unlike the past practice of using the Wholesale Price Index. He is the man behind the formation of the Joint Monetary Policy Panel consisting of the government and RBI representatives.

As a close confidante of Raghuram Rajan, the outgoing RBI governor, Patel has been associated with the RBI for the past 44 months as Deputy Governor. Also, his appointment as the RBI governor makes him part of the clan for at least another 36 months to come. He looked beyond the horizon and took the road not taken in adopting unconventional policies, although they faced resistance even from the ruling party BJP. Hence, this long participation in the field has opened up his mind to having a long term view.

Challenges on His Way

• There are multiple challenges lined up in the Banker’s way.
• For fixation of rates, Patel will not be able to independently take decisions. Instead, it will have to work in collaboration and consultation of the 6 member Committee.
• With consumer inflation of 6.07% breaking the forward guidance of 6%, Patel will be responsible for capping inflation. Also, unlike Rajan’s term, the fall in oil and commodity prices has stopped which will cause problem.
• As part of the Central Bank’s efforts to clean up of the banking system, with a special focus on state-owned banks, Patel will face obstacles in tackling the Gross Non Performing Assets (GNPAs) of Indian banks that rose to the 6 lakh crore mark at end of March, 2016. He has to facilitate credit flow for improved economic activity.
• The most difficult task for Patel will be to prove himself as Rajan’s successor. While Rajan surprised the mob by declaring that he wouldn’t like an extension in his term as the RBI Governor, it was because of his outspoken nature that was often a reason of conflict with the government. Patel is expected to step up with the anti inflation stance with a focus on growth.

Market Scenario

The Nifty share price opened at 8680 on Monday morning showing no signs of jubilation on the back drop of the appointment of the new RBI Governor.

Mr Patel, who was Rajan’s inflation warrior, will now face the inflation litmus test. When he takes charge, he will represent continuity in monetary policy but will be expected to do a Rajan: Keep inflation down without hurting growth. And he will have to do that without inviting the tag his predecessor had earned — of being an interest rate "hawk".

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