A peek into the mind of Urjit Patel, through his papers

Out goes Raghuram Rajan, and in comes Urjit Patel as the governor of the Reserve Bank of India.

Not much is known about the Kenya born and Oxford and Yale educated economist. He rarely gave any media interviews and almost never spoke out of turn.

Yet, if one looks at some of his writings, one can gather some much needed insight into the mind behind a reticent demeanor.

His vision for the RBI

A 2015 working paper, Patel co-authored with University of British Columbia professor Amartya Lahiri, for instance, provides clues into Patel’s vision for the RBI, going forward. “For the central bank, the tasks ahead are two-fold. First, perhaps re-balance the reform agenda from high profile subjects such as legislative amendments, like a monetary policy framework and associated institutional changes, to addressing policy-induced distortions that undermine monetary policy and transmission. Second, address the challenge of multiple roles/objectives and limited instruments,” Patel and Lahiri said in the paper.

Bank privatisation

In a 2003 paper, presented jointly with Axis Bank chief economist Suagata Bhattacharya, Patel advocated privatising public sector banks in the country, something the Reserve Bank of India (RBI) has been apprehensive about. “The system of intermediation will not improve appreciably in the absence of any serious steps towards changing incentives blunted by public sector involvement (of which ownership is an important aspect). To sharpen these incentives, outright privatisation may not be sufficient, but it is necessary,” Patel and Bhattacharya argued in their paper.

Combating inflation

Patel has been critical of how policymakers have sought to tame inflation. In a 2012 paper co-authored with the late Gangadhar Darbha, Patel questioned how top officials were comfortable with 6% inflation. “A senior (and serious) official earlier this year described six percent annual inflation as “comfortable”, and “quiet acceptable”—comfortable and acceptable to whom? Is the suspension of long-standing sound, conservative, inflationary targets temporary, or, is this the new “normal”? Answers to these questions aside, what is clear is that persistence of elevated inflation is agreeable to some policy makers. The authorities want to take credit for India’s growth performance but stay blameless on the price front—a case of heads I win, tails you lose!” the paper noted.

Patel has spoken on inflation before at least on two occasions. In a 2010 paper with Citigroup chief economist Willem H Buiter, Patel said that given the “sorry fate” of fiscal responsibility laws across most parts of the world “it is hardly prejudicial to conclude that fiscal virtue cannot be legislated without thoughtful mechanism design that renders its practice incentive-compatible.” “The challenge lies at the central government level and pertains to controlling expenditure items that have evolved, politically speaking, into entitlements. The primary deficit therefore has the characteristics of being “structural,” the paper noted.

“As for increasing the efficiency and scope of financial intermediation, the problem is not just public ownership. The poor quality of financial intermediation by the formal financial system also results from the absence of effective competitive threats to inefficient incumbents. The sure, quick, and effective way to address this issue is to open up India’s financial sector fully and without discriminatory constraints to foreign competition,” Patel and Buiter said in an earlier paper published in 2005.

Fiscal credibility

In a 2012 article authored with former finance commission chief Vijay Kelkar, Patel argued against populist measures such as subsidies which threaten fiscal stability. “For the most part, the disquiet over India’s fiscal stance stems not so much from impending external debt service problems as doubts over maneuverability. To start with, a virtual exhaustion of fiscal “insurance cover” to counter cyclically deal with prospective shocks emanating as backwash from serious crisis elsewhere like the euro zone, or, Iran, not to mention the task of recapitalizing government-owned banks as non-performing assets rise,” the piece said.

“The fiscal situation also severely circumscribes exchange rate management by the Reserve Bank of India as an instrument of strategic commercial policy. Even more worrisome, and a source of considerable uncertainty for the nation’s public finance, is the impending expansion of entitlements, both explicitly for food and implicitly for petroleum products. Furthermore, there has been an excessive reliance on monetary policy in the absence of the requisite fiscal retrenchment in the fight against inflation,” it went on to say.

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