Dr. Syama Prasad Mookerjee Research Foundation

The Entry of Wise Hawk- Governor Urjit Patel

By Guriya

The first monetary policy under the purview of newly constituted Monetary Policy Committee (MPC) was announced on October 4, 2016. The committee chaired by Urjit Patel, the newly appointed governor of Reserve bank of India, cut the interest rate by a quarter. The governor’s maiden monetary policy targeted the growth numbers. With stabilized inflation over the past few quarters, decent rainfall and food prices, the economy need a push towards growth. The finance minister Arun Jaitley has been fighting for a rate cut which he had expressed in September this year, which was taken into account by the MPC.

On August 20, 2016, Urjit Patel got appointed as the 24thGovernor of the Reserve Bank of India, effective from September 4, 2016. The appointment of “Dr. Patel”, as largely and popularly known, is imperative for the current government as it is their first Governor appointment since they have come to power. The government chose to continue with the Deputy Governor appointed by the UPA alliance in 2013, which makes Dr. Patel’s appointment quite path breaking and a great example of bipartisanship in today’s polity.

Urjit Patel enters with a magnificent academic record and an exposure to government, consulting, public and private sector services. Dr. Patel was born in Kenya, and he later pursued his academic endeavors in UK and the US. He majored in Economics from the London School of Economics, and then did an M. Phil from Oxford University in 1986 and a PhD from Yale University in 1990. The grandeur of the academic institutions Dr. Patel has been associated with talks volumes about his credentials as a scholar. He has been associated with the names in the political arena from PV Narsimha Rao, Dr. Manmohan Singh, P Chidambaram, to Narendra Modi, who have acknowledged the work of Urjit Patel as a distinguished scholar, contributor to the monetary policy of the government and lately, as a Deputy Governor of the RBI. Dr. Patel has served at the International Monetary Fund (IMF) and was on deputation from the IMF to the Reserve Bank during 1996-1997. During that phase, he provided advice on development of the debt market, banking sector reforms, pension fund reforms, and evolution of the foreign exchange market. This has been one of the reasons for the admiration of Urjit Patel amongst the political identities like Dr. Manmohan Singh, who talks in high praise of him.

Dr. Patel has also been associated with the Prime Minister Narendra Modi since early 2000 when he worked as a member of the board (and chairman of the audit committee) of Gujarat State Petroleum Corporation Ltd. He was also an advisor (Energy and Infrastructure) with Boston Consulting Group before he became the Deputy Governor of the Reserve Bank of India. He also held the position of president of business development of the Reliance Industries. In 2013, under the UPA government, he was appointed as the Deputy Governor of RBI. An economist by profession, Dr. Patel has worked in the financial, energy, advisory and consultant territories and successfully conqueror them all.

Dr. Patel’s trustworthiness can be further derived as the celebrated economist Jagdish Bhagwati addressed his appointment as a “terrific choice”. Dr. Bhagwati said that, “Dr Urjit Patel is a terrific choice. A student of the great Indian economist, Professor T N Srinivasan, and also a macroeconomic expert trained at Yale, Patel will be an ideal Governor who can take over with distinction and continuity from Dr Raghuram Rajan.”

As the Deputy Governor of RBI, Dr. Patel headed the Urjit Patel Committee which had been primarily designed to take the monetary policy decisions. In 2014, the committee suggested the government to keep the CPI (Consumer Price Index) as a measure of nominal policy anchor. The committee also recommended 4% (+/-2) inflation target to the government which was later put forth in the monetary policy framework agreement in February 2015 signed between the government and the RBI.  Dr. Patel has written several seminal papers on monetary policy, budget deficit, and energy allocation. Dr. Patel’s vision of a structured monetary policy as well as the RBI’s contribution in attaining that visionwas laid in a 2015 working paper (“Challenges of Effective Monetary Policy in Emerging Economies”), published by RBI, which articulated:

“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 efficacy and transmission. Second, address the challenge of multiple roles/objectives and limited instruments.”

In a June 2016 note, Japanese brokerage Nomura mentioned Patel as the only one among the seven speculated successors under the “hawk” category. “As a deputy governor in charge of Monetary Policy, Patel’s (possible) appointment would imply continuity of the present monetary policy. He is generally perceived as more hawkish,” the Nomura economists had said.

Often termed as a “hawk” for his work in the monetary policy sphere, Dr. Patel will have to face tough challenges as the Governor of RBI. As an inflation combatant, the ideal stand for him would be tweak and increase the interest rates. But with the creation of the new Monetary Policy Committee (MPC) under the RBI Act on June 27, 2016, he will not be able to exercise as much power on the interest rates as his prior counterparts. It would again be a challenge in front of Dr. Patel to manage the new scenario under which the government would also be a party for setting the interest rates in the country. The government’s persistent commitment towards monetary conservatism and the Governor’sdesirability for subduing inflation of might be a clash of interest or a combined goal while implementation of policies are concerned in the short and long run.

The first monetary review would have set expectations. But the advisor will have to take the stand as a “hawk” or a “dove”, in the upcoming decisions he makes. But like the outgoing Governor Dr. Raghuram Rajan had once said commenting on inflation, “We are neither hawks, nor doves. We are owl. The owl is traditionally the symbol of wisdom.” Urjit Patel might be a “wise” hawk working towards its prime agenda of plummeting inflation numbers through wise decisions under the purview of the MPC.

Dr. Patel in his address to the Business Standard Best B-School project award spoke about the “Make In India” as provider of much needed focal point to inculcate the competitiveness in key sectors of the economy. He also entitled Jan DhanYojana as a “game changer” as it broadened the scope of financial inclusion of the economy. Hence, the government and the governor can assist each other, imbibing each other’s ideas, which would provide both fiscal and monetary stability taking the economy to a better growth trajectory.

The “stress test” (as they popularly use in banking) of Urjit Patel, would determine his ability to withstand the adversities in his tenure. As the captain of the ship, he will have the responsibilities of steering the wheels of monetary policies, current and capital account deficits and currency volatilities.

(Guriya is a Young India Fellow (2016-2017) at Ashoka University. Views expressed by the author are strictly personal)