Challenges before Urjit Patel

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The decision to pick Reserve Bank of India Deputy Governor Urjit Patel as the successor to outgoing Governor Raghuram Rajan is a clear affirmation of the Centre’s commitment to ensure policy continuity at the central bank. That the man chosen for the top job at the RBI is a person who helped formulate crucial changes in the monetary framework, including the decision to target a specified inflation level as the primary remit of the bank, reflects the administration’s focus on making price stability central to its economic agenda. Prime Minister Narendra Modi recently reiterated his backing for the 4 per cent retail inflation target, at a time when the Consumer Price Index-based measure had accelerated to 6.07 per cent. The Centre’s choice of the Yale economist who has earned a reputation as a “fiscal conservative” with a “hardline stance” on inflation, is in line with that thinking.
Dr Patel will need little time to settle in, given his insider credentials and experience in working with officials at the Finance Ministry. But as in all such transitions, there will also be substantive change. Known at the RBI headquarters as someone who largely keeps his own counsel and prefers a low-profile and discreet working style, Dr Patel is unlikely to grab headlines as frequently as his plain-speaking predecessor has done. And that is another factor that must have weighed in his favour.
The first among many challenges that the new Governor will face will be the changed circumstances of monetary policy formulation. When Dr Patel chairs the first meetings of the Monetary Policy Committee – the six-member panel that is expected to start deciding interest rates from the October 4 policy announcement onwards – it will be interesting and instructive to see how he helms the committee approach to rate-setting. As the head of the banking regulator, Dr Patel also inherits the ongoing clean-up of bank balance sheets. Unclogging the credit pipeline by helping resolve the build-up of stressed assets with the country’s lenders and thereby improving monetary transmission are tasks that Dr. Rajan will now leave unfinished. Investors and markets alike will be keenly watching his successor’s approach to expediting the process, especially given Dr Patel’s past stress on fiscal restraint. His wide-ranging experience – he has played roles at multilateral lending institutions and diverse industries, including a stint in advising on business development strategy at Reliance Industries – ought to stand him in good stead while dealing with the complexities of regulating the markets, the financial services industry and payments systems at a time of rapid technological change and disruption. Dr Patel will also have his task cut out in managing and future-proofing key cadres at the central bank itself.

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