Raghuvir Srinivasan

From Rajan to Urjit: the change is seamless

RAGHUVIR SRINIVASAN | Updated on January 17, 2018 Published on August 21, 2016

RBI relay The perfect pass, on all counts Reuters

The Centre’s pick sends strong signals — chiefly, that it was not unhappy with the outgoing governor’s positions

The appointment of Urjit Patel as Raghuram Rajan’s successor at the Reserve Bank of India should come as salve to all those hurt and peeved by the circumstances of Rajan’s exit, including the markets. Patel is a worthy successor to Rajan, at least as far as academic accomplishment and professional pedigree go. What’s more, he’s been Rajan’s trusted lieutenant at the RBI.

Indeed, Patel ticks off all the right boxes for analysts, markets and even critics of the Government. He’s an economist with an Oxford-Yale-IMF background, he’s spent time both with the Government in Delhi and at the RBI earlier in advisory roles, and as an incumbent deputy governor in charge of the important monetary policy division, Patel’s appointment represents continuity at the top of the central bank.

Of course, it helps that he seems to enjoy bipartisan support too. He was a consultant to the finance ministry during Atal Behari Vajpayee’s time apart from being a member in a laundry list of government committees under the NDA and UPA-I, and was appointed to the RBI as deputy governor by the UPA-II government. The Modi government has thus adopted a UPA nominee as its own, so to say.

Significant stints

Patel’s stint as non-executive director on the board of Gujarat State Petroleum Corporation when Prime Minister Narendra Modi was Gujarat’s chief minister is an interesting piece of statistic. But more interesting are his stints as president (business development) with Reliance Industries and as non-executive director and economist with the scam tainted Multi-Commodity Exchange (MCX). Interestingly, the official profile of Patel on the RBI’s website does not mention the MCX association though it mentions the Reliance stint.

After the announcement from the Government, the twitterati have been quick to highlight these facts. To be fair to Patel, these cannot detract from an otherwise impressive CV and again, if he was found fit and proper to be deputy governor, then it should be the same for governor too. Corporate associations need not be a black mark unless there’s reason to believe otherwise, and there’s nothing on that score at this point.

From a larger perspective, Patel’s appointment sends out some interesting signals. The first is that the powers-that-be, including the Prime Minister, understand the importance of conservatism in monetary policy and that subduing inflation is central to sustained economic growth.

But for this understanding, Patel, a known inflation warrior, would not have stood a chance to be appointed governor. This aspect should be seen in the backdrop of the narrative — overblown in recent times — of tussle between growth ( represented by the Centre) and inflation ( represented by the RBI).

Patel’s appointment is also an indirect acknowledgment of Raghuram Rajan’s work and legacy. After all, the intellectual ballast and software that drove Rajan’s hard monetary policy stance came from his deputy governor, Urjit Patel, and the report of the committee he headed.

Low profile

If the Centre indeed had a problem with Rajan’s approach to monetary policy the last person it should have picked as his successor was Patel, his trusted lieutenant. Taking this logic a step further, it is clear that Rajan’s hard stance on interest rates and his disinclination to please the Centre were really not factors that led to his term not being renewed. Was the problem, then, his speeches as a public intellectual, or his larger-than-life image?

There are no such problems with Patel who’s suitably low profile. Despite being an RBI insider and notwithstanding his conservative credentials, Patel will be closely watched in the months ahead as the markets try and fit him into an appropriate role in the RBI-Centre equation.

While all the focus will be on monetary policy, Patel will also be watched for his approach to the ongoing balance-sheet clean-up of public sector banks. Will there be a let-up in the pressure on banks to release all the skeletons from their cupboards?

Patel’s monetary policy exploits are well-known given that the function was his responsibility as deputy governor. But not so well-known are his views on the NPA clean-up issue.

Any tenure of an RBI governor is important but Patel’s will be all the more so because he will be leading monetary policy when Prime Minister Modi goes back to the voters in 2019 for re-election. There will be pressure to show economic growth along with jobs even as keeping prices under check will be crucial. The chances of friction between the Centre and the RBI are high. But that’s in the future.

Meanwhile, there will be a very happy and satisfied gentleman taking the plane to Chicago come early September. Rajan will know that he’s leaving his legacy and his unfinished agenda in safe hands.

Published on August 21, 2016

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