Urjit Patel needs fine balancing act between inflation and economic growth
Hyderabad: With RBI governor-designate Urjit Patel coming from the same school of thought as Dr Raghuram Rajan, he would have to do a fine balancing act of keeping inflation under control and boosting economic growth.
Theocratically, higher interest rates keep inflation under control, which is good. On the flip-side, the higher rates slow down economic growth, which is bad.
So this could be the biggest challenge that Dr Patel could face as inflation has alre-ady crossed the RBI’s comfort zone. But any monetary tightening could affect the economic recovery in the country.
In the short-run, he will also have to contend with inflationary pressures expected to be caused by the Pay Commission award and the implementation of the Goods and Services Tax.
On the inflation front, Dr Patel may not have the luxury of cheap oil that Dr Rajan had. Global oil prices, which are gradually rising, could have an adverse impact on inflation in India.
His immediate problem, however, could be the redemption of $20-25 billion of FCNR(B) deposits from the next month. While India is having the record high forex reserves of $366 billion in its kitty, the RBI has to ensure that the redemption is not disruptive.
Considered as a hard taskmaster and a boring and serious person as against Dr Rajan’s rock star tag, Dr Patel’s approach towards Dr Rajan’s unfinished agenda of cleaning up banks’ balance sheets could be something that would be keenly watched.
According to a report, top 100 borrowers of public sector banks owe nearly '14 lakh crore to them. The wilful defaulters as a percentage of gross NPAs as on March 2016 was 16.09 per cent.
Dr Patel is also expected to lead a reformed central bank, where the government appointees will play a key role in deciding monetary policy. However, some officials at RBI feel that Dr Patel is lacking in communication skills.
A Reuters report quoting RBI officials, describes Dr Patel as “a moody man who avoids social interaction and huddles only with close aides”. “He has an abrasive personality. At a time when RBI policy is decided by a committee, communication skills are a necessity which is lacking in him,” the report said quoting the official.
