Over the last few weeks, a committee appointed by the government to review India’s fiscal deficit targets and which is at work now had received several papers related to the multi- country experience of implementation of fiscal rules by various countries. But what may have generated interest for the committee was also an original note — the first one perhaps on fiscal rules and the need for a law to ensure discipline in spending by governments— which was written for the Ministry of Finance in 1998-99. Well over 16 years later, the author of that note — Urjit Patel, who was then a consultant to the ministry of finance during the Vajpayee government era is in a position to revisit his thoughts both as a member of the committee and now as the Governor of the Reserve Bank of India. India’s political executives love to often tell the world how there is change with continuity in this country when they attempt to comfort flighty investors about staying the course on the economic policy front. Nothing illustrates that saying better than the new Governor’s past record and approach towards fiscal rules and responsibility starting then and also the fact that the government has chosen the man who headed a committee which evolved a new monetary policy framework marked by inflation targeting to in fact implement it as India moves towards a system in which its central bank chief will no longer be the man who will take the final call in setting interest rates. It is this background and approach of the new Governor — a trained macro economist which may well be reassuring for investors, worried about the exit of Raghuram Rajan. Not just that. Patel, who studied at both Oxford and Yale has had a long institutional link to policy making in India. Twenty-five years ago when India signed up for a loan agreement with the International Monetary Fund to stave off a balance of payment crisis, Patel who had joined the IMF after university, was at work with the Mission for India, working in Delhi with the Mission Leader as the lender reviewed closely the milestones of the government during that period of reforms. That was to continue later when he joined the newly-promoted institution by the government in 1997 — IDFC — when the lender engaged with the government in designing policies for the telecom, power and road sectors. Patel was in fact at the RBI much before he came in as deputy governor in 2013. During C Rangarajan’s tenure as Governor between 1992 and 1997, Patel was brought in as an Officer on Special Duty (OSD) like Vijay Joshi of Oxford University by Manmohan Singh when he was a Governor. Those were the days when the RBI was looking at potential reforms in the financial markets and also on foreign exchange management. All these and the fact that he is now an insider having been a Deputy Governor for a little over three years could mean that he wouldn’t need a learning curve unlike an outsider to the central bank or a bureaucrat from the finance ministry when assigned this job. C Rangarajan, while acknowledging that it was a good choice by the government reckons that it was important to have someone who believed in the new monetary policy framework as the RBI chief. The new policy framework worked out by a committee headed by Patel has the Consumer Price Index or what is known as headline inflation as a measure of nominal anchor — with the inflation target — 4 per cent plus or minus 2 per cent around it. That was based on the belief that CPI or headline inflation reflects the cost of living and influences inflation expectations. Patel has said so too in the past that sustained low inflation and a credible programme of fiscal rectitude was key to lowering the cost of capital. That would be interpreted by those looking for cues from the new governor on whether he will depart from the path of Governor, Raghuram Rajan. But where there is bound to be a difference is perhaps in terms of public engagement. In contrast to Rajan, Patel has been very low profile and not active on the speaking circuit. After what many in the government felt was a larger than life image of the RBI Governor of the past three years, and the circumstances surrounding his departure, it was perhaps inevitable that the government would settle for someone far more grounded and in tune with the style of central bank chiefs of the past who stuck to their turf. That’s where the challenge for the new RBI governor lies. There are many who will be watching how he engages with the government and the establishment on the issue of not just monetary and fiscal policy management but also on achieving a balance between relative independence of the RBI and its relationship with the government —often seen to be at conflict over the last few years. That and the challenge of cleaning up the bad loan mess and regulation of banks would be on the agenda. Both Vijay Kelkar, former finance secretary and Chairman 13th Finance Commission and Vinod Rai, Chairman Bank Boards Bureau feel that the government made a good choice in terms of ensuring continuity. According to Kelkar, Patel as a sound macro economist and professional was also grounded in the real economy. And as for change with continuity, it was the UPA Government which appointed him as deputy governor in 2013 only for the Modi Government to reappoint him earlier this year when his three year term got over and now to elevate him to the top job. The insider advantage # The fact that he is now an insider having been a Deputy Governor for a little over three years could mean that he wouldn’t need a learning curve unlike an outsider to the central bank or a is job # Rangarajan reckons that it was important to have someone who believed in the new monetary policy framework as the RBI chief
