‘Urjit will have to go beyond his monetary policy ambit, look at macro economy’

The government has appointed economist Urjit Patel as the 24th Governor of the Reserve Bank of India. Patel will take charge on September 4. Speaking to BTVI , Rajiv Kumar, the government’s Financial Sector Regulatory Appointments Search Committee’s (FSRASC) external expert, says Urjit Patel will have to go slightly beyond his monetary policy ambit and look at the macro economy. Patel will have to fight inflation as a member of the government team so that growth and employment can be generated in the Indian economy, he says. Excerpts:

What do you make of the appointment of Urjit Patel as the new RBI Governor?

Urjit Patel is somebody who has had a long experience with the Indian economy. Here is somebody who has had a fairly long innings. He knows the different sectors of the economy quite well.

Secondly, he will provide continuity with the preceding Governor Raghuram Rajan because both of them have been on the same page as far as inflation targeting and inflation control is concerned.

So, continuity along with strong experience of different sectors of the Indian economy prompted the government to appoint Urjit Patel as the new Governor.

Some are already calling Patel an inflation hawk and someone who will continue to adopt a hard line on price stability given the demands the government has made of monetary policies in the recent past. How will the new Governor balance growth and price stability?

I think Urjit will have to convert himself from a hawk into an eagle. I am not saying that he should become an inflation dove. None of us want that at all, because inflation is a very high price people, especially the poor, have to pay, and it affects them the most. His focus on inflation is all very well.

Nonetheless he will have to take cognizance of what is required for generating jobs in the economy because that is the key. I do not purposefully talk about growth because you could get jobless growth. But he will have to somehow work with the government to ensure that the economy generates large number of jobs that are needed today to employ more than a million young people who join the workforce every month in this country. And for that reason, what is needed is his coordination with the government; his ability to convince the government to take some supply-side measures so that the food inflation doesn’t rear up its ugly head will be the key.

Essentially, what I am saying is that Urjit Patel will have to go slightly beyond his monetary policy ambit and looking at the macro economy in a broader sense and also at the supply-side issues with the government. And, therefore, he will fight inflation as a member of the government team so that growth and employment can be generated in the Indian economy.

The RBI has taken several steps to fix the NPA issues, but not all have worked as intended and there is still a long way to go. What do you expect the Governor-designate to do on this front?

First, there is a Department of Banking Supervision within the RBI headed by a Deputy Governor. He will have to make sure that that department is fully strengthened and reinforced. That will provide Patel the required boost to handle the banking sector issues, problems and regulations in a much better way.

Second, he has had some experience as the Executive Director of IDFC before it became a bank. It was then primarily an infrastructure investment entity. The only commercial banking experience he has had is when I worked with him in the Central Board of State Bank of India where he represented the RBI as the Deputy Governor. He had some frustrations there, I know about those. We both were in the audit committee. He knows where the problems could be.

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