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New RBI guv Urjit Patel is Rajan's trusted lieutenant against inflation

Neeraj Thakur | Updated on: 20 August 2016, 20:23 IST
QUICK PILL
Who is Urjit Patel?
  • 52-year-old Patel has a PhD in Economics from Yale
  • Appointed as the deputy governor at RBI in 2013
  • He was an advisor with Boston Consulting Group before he became deputy governor
  • He has worked with the International Monetary Fund between 1990 and 1995
More in the story:
  • What Patel\'s appointment means for India\'s monetary policy
  • All you need to know about Urjit Patel

The Narendra Modi government on Saturday appointed Urjit Patel the governor of Reserve Bank of India. Patel, the deputy governor of the apex bank, has been a close aide of Raghuram Rajan in his fight against inflation.

There was speculation that the Centre would replace Rajan with someone who would be an antithesis of him, especially vis-a-vis inflation.

The appointment comes after two months of public criticism by experts and industrialists disappointed with the Modi government not retaining Rajan. His tenure was marked by a sustained fight against inflation despite Finance Minister Arun Jaitley stressing about the need for a low interest rate regime to fuel growth in the country.

In fact, Rajan was criticised by several key people in the NDA government for his acute focus on controlling inflation.

Patel against inflation

It is important to understand that it was a panel headed by Patel that proposed inflation targeting as the primary concern for RBI's monetary policy.

It was based on the proposal made in a Patel-headed panel's report that the central bank began focussing primarily on retail inflation (consumer price index-based inflation) for the purpose of monetary policy formulation.

Before that, economists as well as the central bank focussed only on wholesale price index-based inflation, which is usually lower than the retail inflation.

Had the RBI been focussing on whole price index, the interest rates in the country would have been much lower. But an above 4% inflation - currently at 6.07% - ensured that Rajan lowered interest rates only by 1.5% in his three-year tenure.

Going by Patel's past, one can say that he too belongs to the same school of thought as Rajan does when it comes to dealing with inflation.

The signal

Patel's promotion as the RBI governor gives a signal to the market as well as to international investors that inflation will remain a key focus point for future monetary policy guidance.

Recently, international ratings agency, Moody's Investors Service Senior VP Sovereign Risk Group Marie Diron had recently praised RBI's strict focus on inflation.

"In the last two years, India's inflation has fallen to more moderate levels, likely in part because of more credible monetary policy that has anchored inflation expectations. We expect the RBI to continue with similar policies and communication, showing commitment to achieving its inflation target," Diron had told PTI.

Moody's has a 'Baa3' rating on India, with a positive outlook.

The implication

Clearly, Modi government made a choice based on feedback from the investors' community.

The appointment has been made on the recommendation of the Financial Sector Regulatory Appointment Search Committee (FSRASC) headed by Cabinet Secretary PK Sinha.

Patel has been chosen over other names such as former Deputy Governor Subir Gokarn, RBI's current Chairperson Arundhati Bhattacharya, State Bank of India's Rakesh Mohan, who has been a two-time RBI Deputy Governor, and presently is the director at International Monetary Fund.

The 52-year-old Patel has a PhD in Economics from Yale University and was an advisor with Boston Consulting Group before his appointment as the deputy governor at RBI in 2013.

Patel has worked with the International Monetary Fund between 1990 and 1995 covering the India, US, Bahamas and Myanmar desks.

Patel also served as president of Business Development at Reliance Industries Limited from 1997 to 2006.

He will be the eighth Deputy Governor to be made Governor at RBI.

Edited by Joyjeet Das

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First published: 20 August 2016, 20:23 IST
 
Neeraj Thakur @neerajthakur2

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