 "How Modi govt chose Patel to succeed Rajan")
His being a monetary economist worked in favour of Urjit Patel’s appointment as the RBI governor to replace incumbent Raghuram Rajan when he quits on September 4.
The financial sector regulatory appointment search committee (FSRASC), headed by Cabinet Secretary P K Sinha, had shortlisted five candidates in its third meeting recently — World Bank chief economist and vice-president Kaushik Basu, economic affairs secretary Shaktikanta Das, chief economic advisor Arvind Subramanian and representative of India and a few other neighbouring countries in IMF Subir Gokarn, besides Patel, according to sources. The shortlist was given to Prime Minister Narendra Modi who took the final decision in consultation with Finance Minister Arun Jaitley, they added.
In its two earlier meetings, FSRASC had considered over ten names. These include NITI Aayog vice-chairman Arvind Panagariya, prominent banker and BRICS Bank chief K V Kamath, SBI Chairperson Arundhati Bhattacharya, former Chief Economic Advisor Ashok Lahiri, former India representative in IMF and former RBI Deputy Governor Rakesh Mohan, besides five mentioned above, they added.
This is the first time that the candidates for RBI governorship have been short-listed by a selection committee headed by Cabinet Secretary P K Sinha. Heads of other regulatory bodies, including the Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, Pension Fund Regulatory and Development Authority have earlier been shortlisted by search committees.
Sources said the Narendra Modi government has gone through a very rigorous and detailed process for selecting the new RBI governor. "The appointment of governor cannot be done over a dinner, every process has been followed," said a source.
The very fact that Patel is a monetary expert and has been in RBI as a deputy governor for over three-and-a-half years worked in his favour, sources said. He took charge as RBI deputy governor on January 7, 2013 and as such has enough experience with the functioning of the central bank. Besides him, Gokarn was the other candidate who worked as RBI deputy governor, among those short-listed.'
The financial sector regulatory appointment search committee (FSRASC), headed by Cabinet Secretary P K Sinha, had shortlisted five candidates in its third meeting recently — World Bank chief economist and vice-president Kaushik Basu, economic affairs secretary Shaktikanta Das, chief economic advisor Arvind Subramanian and representative of India and a few other neighbouring countries in IMF Subir Gokarn, besides Patel, according to sources. The shortlist was given to Prime Minister Narendra Modi who took the final decision in consultation with Finance Minister Arun Jaitley, they added.
In its two earlier meetings, FSRASC had considered over ten names. These include NITI Aayog vice-chairman Arvind Panagariya, prominent banker and BRICS Bank chief K V Kamath, SBI Chairperson Arundhati Bhattacharya, former Chief Economic Advisor Ashok Lahiri, former India representative in IMF and former RBI Deputy Governor Rakesh Mohan, besides five mentioned above, they added.
This is the first time that the candidates for RBI governorship have been short-listed by a selection committee headed by Cabinet Secretary P K Sinha. Heads of other regulatory bodies, including the Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, Pension Fund Regulatory and Development Authority have earlier been shortlisted by search committees.
Sources said the Narendra Modi government has gone through a very rigorous and detailed process for selecting the new RBI governor. "The appointment of governor cannot be done over a dinner, every process has been followed," said a source.
The very fact that Patel is a monetary expert and has been in RBI as a deputy governor for over three-and-a-half years worked in his favour, sources said. He took charge as RBI deputy governor on January 7, 2013 and as such has enough experience with the functioning of the central bank. Besides him, Gokarn was the other candidate who worked as RBI deputy governor, among those short-listed.'
In the earlier long list, the name of Rakesh Mohan also featured, but he is said to have shown reluctance since his daughter was ill.
Besides, the new mechanism of monetary policy committee to rein in inflation that would kick in was suggested by a panel headed by Patel, though there is a difference in the structure of the committee as is prescribed now and what was recommended by the committee. Also, inflation targeting to rein in the consumer price index-based rate of price increase within a band of 2-6 per cent was also recommended by the same panel, sources added.
Besides, the new mechanism of monetary policy committee to rein in inflation that would kick in was suggested by a panel headed by Patel, though there is a difference in the structure of the committee as is prescribed now and what was recommended by the committee. Also, inflation targeting to rein in the consumer price index-based rate of price increase within a band of 2-6 per cent was also recommended by the same panel, sources added.
It was on June 18, two months and two days ago, and also on a Saturday, when Rajan announced his decision to depart after his first term. What followed was perhaps the most discussed, tweeted, reported on and speculated upon selection process in RBI’s 81-year history.
In off-record briefings to reporters, it was conveyed that the government’s preference would be for an economist of repute to replace Rajan, and that Indian Administrative Service bureaucrats, who have accounted for 13 of the 23 governors till Rajan, would be the last option.
The sense that government’s senior decision-makers sought to convey was that since Rajan’s departure became public information much ahead of his last day in office, his successor’s name would also be announced in advance. It was expected to be a quick process with impression given earlier that only PM Modi and FM Arun Jaitley being the decision-makers.
Things changed soon after setting up of FSRASC.
In off-record briefings to reporters, it was conveyed that the government’s preference would be for an economist of repute to replace Rajan, and that Indian Administrative Service bureaucrats, who have accounted for 13 of the 23 governors till Rajan, would be the last option.
The sense that government’s senior decision-makers sought to convey was that since Rajan’s departure became public information much ahead of his last day in office, his successor’s name would also be announced in advance. It was expected to be a quick process with impression given earlier that only PM Modi and FM Arun Jaitley being the decision-makers.
Things changed soon after setting up of FSRASC.
| KNOW THE NEW GOVERNOR |
| Born: October 28, 1963 Education:
Key work experience: Deputy governor, Reserve Bank of India since Jan 2013 2008-09: President (business development), Reliance Industries 2006-07: India economics fellow, Brookings Institution 1997-2006: Executive director, IDFC Authored 100-plus papers on macroeconomic policy, international trade, forex, public finance, climate change, infrastructure and economics of regulation PATELSPEAK “I am deeply envious of the young students that I see in front of me. They have the dreams, desire and the capability to create new business models and modern enterprises, which India critically needs at this juncture. There are several notable inter-locking drivers that have been recently initiated or reinforced with vigour, which will complement our budding graduates’ innate talent.” (January 2015 at the Business Standard Best B-Schools project award) “If one goes behind the non-performing assets (NPA) numbers related to the infrastructure sector, what is important to appreciate is that they are not white elephants as such. These assets generate a stream of output that has ready demand. They can quickly start bringing in cash flows for our investors and for our banking system if we fix fuel supply, reduce distribution losses, and address off take agreement design. This should be one of the main tasks going forward" (October 2014, in a media interview) |
KEY CHALLENGES AHEAD FOR URJIT PATEL AS NEW RBI CHIEF
Redemption of FCNR (B) depoits
RBI raised $35 billion through these deposits in September-November 2013. Most of the deposits are getting due this year and the central bank has guided that the resultant dollar outflow (about $20 billion) could create a temporary liquidity crisis in the market. Outgoing governor Raghuram Rajan, though, has guided that it should not be a challenge, if managed well. Nevertheless, for Patel, FCNR (B) deposits remain a daunting task that could destabilise the domestic exchange rate and push the rupee towards record lows.
Inflation
Inflation has started inching up, led by food prices, even as global commodity prices, particularly that of oil have started ticking up. The Consumer Price Index (CPI)-based inflation touched a 23-month high of 6.07 per cent in July, much higher than RBI’s comfort zone of 5 per cent and may seriously jeopardise its efforts in containing long-term inflation at 4 per cent, according to the monetary policy framework’s inflation targeting model.
Growth push
Rajan was criticised for his stern take on inflation and not reducing rates enough. Patel may have to cut rates sharply to let growth take place in a broad-based manner. Certainly, this is what the government and the industry wants.
Asset quality resolution
Public sector banks’ gross bad debt neared Rs 6 lakh crore at the end of FY16, as banks reported heavy bad debts under RBI’s asset quality review. The challenge that remains now is how the central bank will go about with the resolution process as RBI’s previous schemes have not been very effective.
PSB recapitalisation
Indian banks need more capital to meet credit demands of a growing economy. For now the capital is adequate, but it has seen serious erosion with the rise in bad debts. So much so that the erosion was even higher than government’s capital infusion of about Rs 25,000 crore.
Bank consolidation
The government has already taken the first step by announcing that the associate banks of State Bank of India will be merged with the parent. It also wants to privatise IDBI Bank as a precursor to larger consolidation move in the Indian banking industry. Patel will have to oversee the consolidation.
KEY ACHIEVEMENTS
- Urjit Patel is best known for heading the monetary policy committee that had recommended targeting retail inflation, and shifting the focus away from wholesale prices. The strategy was accepted by Raghuram Rajan, and led to an overhaul of the monetary policy, which is said to be one of the most significant moves by RBI since India liberalised its economy in 1991.
- The committee’s suggestion for moving towards a flexible inflation-targeting regime, with a target of 4 per cent with a band of ±2 per cent, was adopted
- The committee had also recommended that there should be a panel to set up interest rates, a divergence from the system being followed then, where the rates were solely decided by the RBI governor.
- Patel had suggested banks should cut dependence on the LAF window at a single rate and should instead get their funds from the new term repo windows. He had also taken steps to ensure call money and broader market money rates remain close to policy rate. This, in turn, has helped in improving the liquidity situation and has given room to the banks to pass on rate cuts slightly faster.