In exactly two weeks, when Urjit Patel takes over as the next governor of the Reserve Bank of India (RBI), he will, literally, have to start from the word go.
The Kenya-born Patel, who graduated from the London School of Economics and the universities of Oxford and Yale, will, like his outgoing boss Raghuram Rajan, have inflation on top of his mind as he settles into the corner office at the RBI.
Having said that, Patel is no stranger to the workings of the central bank. He has been serving as the deputy governor of the RBI since 2013 and this was his second stint at the bank. He had first served the central bank in 1990s.
An interesting choice
Patel’s appointment has not come totally out of the blue. Indeed, his name had been doing the rounds as one of the probables likely to replace Rajan. Yet, it is an intriguing choice, considering the circumstances under which Rajan decided to leave.
Rajan’s was a controversial term at the RBI that included several allegations levelled against him by Bharatiya Janata Party leader and Rajya Sabha member Subramanian Swamy. One of Swamy’s several gripes against Rajan was that since he had been residing in the US for several years and held a US Green Card, he “wasn’t Indian enough.â€
Interesting then, that Patel, according to some reports, acquired an Indian passport just before his appointment as the RBI’s deputy governor. Patel, however, seems to have Swamy’s blessings. In a series of tweets following Patel’s appointment, Swamy said that it was “idiotic†to attack Patel because he was born in Kenya.
A central banker with corporate background
With Patel at helm, not only will the RBI get its first foreign-born chief, it will perhaps also be for the first time that a former corporate honcho will lead the Indian central bank. Patel has, in the past, served as an advisor (energy and infrastructure) at the Boston Consulting Group and president of business development at Reliance Industries Ltd. Apart from these, he has also had stints with Infrastructure Development Finance Company, Gujarat State Petroleum Corp Ltd and the International Monetary Fund.
Is Modi looking for continuity?
The fact that Patel is the Narendra Modi government’s choice becomes even more interesting because his past appointments have been under Congress-led regimes. He was first brought into the RBI from the IMF, way back in the 1990s, by the P V Narasimha Rao government. Again, in 2013, he was made the deputy governor at the central bank by the United Progressive Alliance regime led by Manmohan Singh.
Moreover, as mentioned earlier, Patel is believed to have been Rajan’s close aide, especially when it came to inflation management. This makes it seem that in Patel, the Modi government found a central bank chief who will continue Rajan’s policies and plans on interest rates and inflation.
A tough task at hand
Till recently, Patel headed the panel on Monetary Policy Framework (MPF) at the RBI. MFP had, in January 2014, recommended that inflation should be the variable that should define the monetary policy framework. In fact, it has often been said that Patel has been Rajan’s lieutenant in combating inflation at the central bank.
As he takes office, inflation will certainly be on top of his agenda, especially with retail inflation continuing to be a cause of concern. Another major issue that Patel will have to contend with will be the clean up of Indian banks that began under Rajan.
In fact, following Patel’s appointment, rating agency Moody’s said Sunday that it believes he will continue the process of cleaning banks’ books of their burgeoning non-performing assets. "The shift to inflation targeting at the beginning of last year has contributed to enhance the credibility and transparency of India's monetary policy. Future inflation developments will provide further indications of monetary policy credibility," Moody’s said. “Second, banking sector risk weighs on India's sovereign credit profile. The clean-up of banks' balance sheet has started and it would be credit positive from a sovereign perspective, if it led to improved bank capitalization levels, renewed loan growth and robust risk processes. It involves a wide-ranging set of measures and will be a protracted process,†the statement further added.
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