New Governor for RBI

About couple of hours ago – late on Saturday, August 20th, the Government of India announced the appointment of Dr. Urjit Patel as the 24th Governor of the Reserve Bank of India. He is presently serving as the Deputy Governor under Dr. Raghuram Rajan who leaves on September 4. He headed the RBI Committee that recommended an inflation target of 4% for India with a band of 2% around it. It was sometime in 2013, I think. He represents continuity in many ways. On balance, for now, it is not a bad thing.

He is deemed more of an inflation hawk than the present Governor. So, clearly, it is not the interest rate policies that made the last few months between the present Governor and the Government unpleasant. Reasons have to be found elsewhere.

In any case, this blogger is not a big fan of the argument that RBI has a restrictive monetary policy and that it is responsible for India’s lacklustre investment growth in the private sector (capital formation). This story in ‘Hindustan Times’ has come up with a nice picture to go with the news. Kudos to the person who chose the picture.

Added on 23rd August 2016:

On 21st August, Raghuvir Srinivasan in ‘BusinessLine’ had written a good piece on the appointment of Dr. Urjit Patel as Governor of RBI (ht: TCA Srinivasa Raghavan):

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.

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? [Link]

Yes, his appointment does suggest that the issue with Dr. Raghuram Rajan was not one of policy. I had alluded to that earlier. But, in any case, we will know soon.


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