Govt picks Urjit Patel as new RBI governor; Raghuram Rajan will sign off on September 4

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A fiscal conservative and strong votary of inflation targeting, Patel is currently in charge of the important monetary policy department, which determines the interest rate policy. He has been Rajan’s key aide in formulating monetary policies over the last three years and both are said to share a good rapport.

Incidentally, Rajan had announced his decision to step down exactly 10 Saturdays ago, on June 18. This is the first time that the appointment of the RBI governor has been made on the recommendation of the Financial Sector Regulatory Appointments Search Committee (FSRASC) headed by the Cabinet Secretary. “For the first time, a systematic approach and an objective mechanism have been put in place. The committee had met twice to discuss all possible names that can be considered for this assignment and had submitted a short panel of names to the ACC,” stated a press release issued by the government.

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Through his tenure, Rajan has been outspoken, airing his views in public and at times leaving the government embarrassed and upset. Patel, 52, and eight months younger to Rajan, has always kept a low profile. However, he is as conservative as Rajan on the fiscal front, and believes in keeping inflation within target levels to provide long-term, sustainable growth.

Union Finance Minister reacted to Patel’s appointment on Twitter, saying: “I’m sure he will successfully lead the Reserve Bank & contribute to India’s economic development.”

A senior government official told The Indian Express, “Patel’s choice is a vote for continuity, a monetary policy economist and eminence in the international forum. He has been part of RBI policy-making for more than three years now.” The official said Patel would ensure that the government and the RBI are in sync in promoting growth and creating jobs.

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Patel has many challenges ahead of him, the most critical being turning around the banking sector. Some of the others are a “revival of credit, settlement of non-performing assets and giving a fillip to growth in micro, small and medium enterprises”, the official said.

In the very near term, Patel will need to ensure a smooth redemption of $26 billion-worth FCNR (B) deposits raised in September 2013 that will mature next month. He has to also suggest a fresh name to the government for appointment as a member of the Monetary Policy Committee (MPC).

The government and the RBI had accepted the Patel-led committee’s proposal for the creation of the MPC to set interest rates, which have so far been decided by the RBI governor. As per the proposal, the government and the RBI will nominate three members each to the MPC — the governor will have a casting vote. Patel was nominated as one of the MPC members by Rajan.

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Patel had also chaired the RBI committee, which recommended in 2014 that the RBI should base its policy deliberations on consumer inflation rather than the index related to wholesale prices. Rajan accepted this recommendation and adopted the new CPI as the key measure of inflation. The government and the RBI also accepted the Patel committee’s recommendation that the RBI fix the inflation target, based on CPI, at four per cent with a band of plus or minus two per cent.

The deputy governor had a previous stint with the central bank in 1996-97, when he was on deputation from the International Monetary Fund (IMF) and provided advice on the development of the debt market and banking sector reforms. Prior to his appointment as RBI deputy governor, Patel was advisor (energy & infrastructure), The Boston Consulting Group.

Born on October 28, 1963, Patel earned his MPhil from Oxford in 1986 before completing his doctorate from Yale in 1990. He has been a non-resident Senior Fellow at The Brookings Institution since 2009.