Urjit Patel is the third Reserve Bank of India Governor to take charge since the Lehman Brothers bankruptcy eight years ago. As he and his team prepare themselves for the arduous journey ahead (including the launch of the Monetary Policy Committee, which he helped conceive) the global economy is actually looking healthier than seemed likely a couple of months ago. The same cannot be said for national politics in the major economies, and it is political events that are likely to generate the most global uncertainty in Mr Patel's first year.
This assessment comes from three weeks of overseas travel attending economic conferences first in the US and now in Europe, as well as from exposure to the press on both continents. While I will discuss structural challenges a little later, the resilience of financial markets following the Brexit vote has been surprising and remarkable.
After an initial swoon, both the pound and the euro have strengthened against the dollar. Leading indicators of economic activity in Britain (such as the Purchasing Managers Index for services) appear healthy, and growth in the euro area remains solid, if unspectacular. Leading investment banks have retreated from their call that the UK economy would slip into recession.
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US growth has disappointed in the first half, yet noises from the US Federal Reserve (Fed) around its annual conference at Jackson Hole confirm an increasing consensus among its leaders that labour markets are now sufficiently tight and that real wages will finally start to rise. Some credible and respected observers of the Fed worry that it may have waited too long to raise rates in pursuit of a self-imposed inflation target that is subject to considerable measurement error and frequent revisions. Elsewhere, fears of a Chinese blowout have eased and with a traumatic political resolution in Brazil (and the delivery of a successful Rio Olympics) there is some optimism that the recession in that economy may have bottomed out.
It is worth asking how this benign state of affairs has come about. My view is that we have the G20 finance ministers to thank; in turn this reflects a convergence of interests between the US and China, which currently holds the rotating G20 Presidency. Some confirmation for this view is provided by an article in the UK Financial Times, where the US Treasury Secretary declared victory in the stimulus versus austerity debate ahead of last week's Summit. This stands in sharp contrast to the resistance Prime Minister Shinzo Abe encountered at the G7 summit in Japan in May. In this regard, at least the outcome of the Brexit referendum seems to have concentrated minds. With China in the cross-hairs of both presidential campaigns, there was additional incentive for cooperation between the US and China at the G20 Leaders Summit.
If this is the good news, interactions over the past weeks have revealed deeper tensions that remain unresolved. While much has been achieved in reducing systemic risk in global finance, it has been worrying to hear senior financial officials in both the US and Europe declare flatly that they no longer have political support to commit public resources to rescue financial institutions in the next crisis. Of course they have every incentive to say that ahead of the event, but there is no reason to believe that the next crisis will be any less messy than the present one. The RBI stands warned.
However, if prevention of systemic crisis is preferred to cure, the discussions also suggest that the present structure of costs and incentives leaves many banks in advanced countries uninterested in expanding domestic lending, let alone trade finance or correspondent banking, suggesting that a safer, less leveraged banking system will impose its own global growth cost.
A second theme with potential global consequences is the growing divide on regulatory policy across the Atlantic. Two examples come to mind. The first is the finding by the EU Commission at the end of August, that Ireland violated state aid rules in the tax agreement it struck with Apple a decade ago. Irish tax authorities, and authorities in other European jurisdictions have been invited, under this finding, to pursue claims amounting to $14.5 billion to offset what has been presented as illegal discriminatory behavior favouring Apple.
To no one's surprise this finding has been angrily challenged by Apple, by the US Treasury and by the Irish Finance Ministry. To the Indian ears there is a certain irony in an advanced country regulator retroactively invoking penalties in a transfer pricing case (we were told only poor countries tried these stunts!) It is also too early to make a judgment on the rights and wrongs of the case. But, the underlying politics are clear: Sweetheart deals with rich multinationals are seen as politically open to attack in a way that would have been unthinkable before the crisis.
The second straw in the wind has been the declaration by politicians in both Germany and France that negotiations with the US on the Transatlantic Trade and Investment Partnership (TTIP) are going nowhere and should be suspended. (This was meant to balance the Trans-Pacific Partnership, where negotiations have been concluded, although ratification by the US Congress remains uncertain.) Underlying this stalemate is the change in mood on both sides of the Atlantic toward granting concessions within the framework of trade agreements.
This leads immediately to the final observation. Elites in major advanced democracies have failed to persuade their citizens of the fairness of the outcomes from globalisation and, as a result, support for globalisation has become politically toxic in these countries. India has tended to see support for the rules of globalisation as a public good where, so far, because of its size it could get away by being a free rider. If my analysis above is at all correct, this state of disengagement will carry increasingly high costs for us, even though our own electorate is largely unprepared for the give and take such engagement will require. This needs to be a major project for the Modi government as it approaches mid-term.
The writer is Nonresident Fellow Bruegel, Brussels, and Senior Fellow, Mastercard Center for Inclusive Growth These views are his own
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