 "Newsmakers of the Year: Raghuram Rajan and Urjit Patel")
Raghuram Rajan
Former governor, Reserve Bank of India
TALKING HEAD
Earlier this month, Raghuram Rajan addressed Indian Institute of Management-Ahmedabad students on global economic challenges but steered clear of talking of India-specific issues — including demonetisation. For a man who rarely hesitated to openly voice his opinions, this new-found reticence was explicable only because the former governor of the Reserve Bank of India (RBI) has resolved not to comment on India-related issues for at least a year after he demitted office in September.
The world got to know about his remarks at IIM-A only because of a vanilla press release issued apparently at the 53-year-old alumnus’ request. This would have been unthinkable just two months ago, when Rajan was a newsmaker whenever he spoke in public. Unburdened by false modesty, he was unlike any of his predecessors in his ability to generate quotable quotes. Consider his explanation for an uncharacteristic repo rate cut in September 2015: “My name is Raghuram Rajan and I do what I do.”
Rajan has returned to his old stamping ground at the University of Chicago. He was far away from North Block and Mint Road when demonetisation was announced, but his name keeps cropping up. Did he endorse this move when the government (read the prime minister) raised the issue with him? Probably not, as the annual Lalit Doshi Memorial Lecture he delivered in August suggests: “I think there are ways around demonetisation. It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on the incentives to generate and retain black money,” he said.
Yet he remains one of this year’s biggest newsmakers. The question of whether he would get a second term or not hit even non-financial newspaper front pages. Rajan’s own reticence on this fuelled the frenzy and there was no doubt that the gulf between him and the government was wide. He confirmed this in a television interview after his resignation, saying, “I was willing perhaps to stay, provided we could reach the right kind of agreement. We didn’t. That’s where it ended.”
That left cause for endless speculation. What agreement was he seeking? Why would a government jettison the services of someone who commands global respect and has demonstrably made a difference? Could it be because he enraged the business community with his reluctance to cut interest rates?
Or perhaps it was his penchant — unique about central bankers worldwide, surely — of expressing his candid opinion on issues outside his remit. On the government’s pet scheme of Make in India he quipped that it should have been called Make For India. On the regime’s emphasis on India’s growth prospects, he produced one of his more quotable quotes: “India is a one-eyed king in a land of the blind”.
In his farewell letter to RBI staffers, Rajan expressed disappointment that he would not be able to see through two important developments: The formation of a Monetary Policy Committee that would, ironically, reduce the RBI governor’s powers, and the asset quality review of public sector banks. The first is in place, and the second will, hopefully, follow.
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Urjit Patel
Governor, Reserve Bank of India
SILENT WITNESS
Urjit Patel’s two immediate predecessors also had a trial by fire in their early days as the Reserve Bank of India (RBI) Governor, but there is a crucial difference. While both D Subbarao and Raghuram Rajan had to tackle issues that were triggered by global developments, Patel, who is just three months into his job, finds himself grappling with a disruption that has been made in India. The jury is out on how effective RBI has been in dealing with the issue, but everyone seems to agree that Patel has been left to fend for himself and defend a decision in which the central bank had a relatively insignificant role. Almost everyone, therefore, takes Union Minister Piyush Goyal’s statement that the RBI governor and his board had taken the decision on demonetisation with a bagful of salt.
That brings into sharp focus RBI’s autonomy, with the most common question being whether Patel should have been more forceful in trying to convince the political leadership that the system is just not ready to manage the fallout of a decision that rendered worthless currency notes amounting to 86.5 per cent of India’s cash in circulation. It’s clear that a month and a half later, the government’s attempts to replace these high-value notes are flailing. The cost of remaining silent hasn’t enhanced RBI’s reputation.
Nor Patel’s, and it diminishes a deserved reputation for the depth of knowledge, toughness and quiet confidence. Apart from his impressive qualifications, Patel’s selection as RBI governor was heavily influenced by the admiration with which he has been viewed with by successive governments. The then finance minister, Manmohan Singh had requested the IMF chief to “loan” Patel, who was deputed to head IMF’s India chapter, for two years to be an advisor in the finance ministry at the end of his stint. “He is very important for the country,” Singh had said.
Patel ran RBI’s Department of Monetary Policy and Research, as well as spearheaded an expert committee — known as the Urjit Patel Committee — that recommended key changes to the country’s monetary policy framework, much of which he is presiding over. Among the committee recommendations was the creation of a Monetary Policy Committee, which is already in place. This committee also recommended switching to more flexible inflation targeting based on headline consumer price inflation instead of wholesale price inflation.
Much has and is still being made of Patel’s reticence, not least because of the contrast with his charismatic predecessor. Given his mould of a classically trained economist, this should not have mattered because he fits to a ‘T’ the Modi government’s preference for appointing people who keep their heads down and don’t make waves in the media. But these are unusual times in an unusual world where economic anxiety among market participants needs to be assuaged by central bankers.
The new RBI governor is known for his wry sense of humour. Sample this: After the third-quarter monetary review for 2013-14, he told a reporter that RBI is neither a hawk nor a dove, but an owl, which is traditionally a symbol of wisdom and is vigilant when others are resting. Perhaps Patel will walk that talk more vigorously in the new year.
