In appointing Urjit Patel, presently deputy governor, as successor to RBI governor Raghuram Rajan the government has assured investors that it intends to continue the policies of Mr Rajan as far as tackling inflation is concerned. Mr Patel himself is known as an “inflation warrior”, and brings with him valuable experience that includes stints with the corporate sector besides his work at the IMF like his predecessor.
The controversy surrounding Mr Rajan’s decision to go back to academia after his term expires on September 4, had unsettled investors both domestically and internationally. There was a view that he was not wanted as the government felt his emphasis on inflation was at the cost of growth. It would therefore be interesting to see what happens in October when the next policy rate will be decided by the Monetary Policy Committee which Mr Patel will head. Mr Patel is close to Mr Rajan who appointed him on various committees that prepared reports on the transformation of the RBI. Also, he is in charge of the monetary policy department and advocating the more relevant consumer price index (CPI) and not the wholesale price index (WPI) as the inflation targetting benchmark. It was also Mr Patel who fixed the inflation target for containing inflation at 4 per cent give or take 2 per cent, and stipulated that if the RBI failed to meet this target it would have to give an explanation to the government for this.
It is going to be an uphill task for him with inflation presently at over 6 per cent. The good monsoon should help to tame inflation though a lot depends on government’s efficient distribution channels.
One of the main and almost contentious issues that Mr Patel will have to tackle is that of the rising non-performing assets of the banks and the clean-up of their balance sheets. It was said that a lobby that did not want this clean-up and wanted the easy loans policies to continue were behind the literal ouster of Mr Rajan who will have had one of the shortest terms — three years — as governor. He was very clear that he would not allow the people with clout to literally loot the banks in connivance with some bank officials. Mr Patel will have to take the same strong stance if the banks are to meet the date set for the clean-up of their balance sheets. Mr Rajan rightly felt that the banks which are reluctant to lend at the moment for fear of increasing their non-performing assets could start lending once their financial positions were strong and many banks as he said, have already exceeded what was expected of them.
Maybe Mr Patel does not have the rockstar image of his predecessor but he will easily be an illustrious successor and complete the unfinished tasks that Mr Rajan was unable to, and implement a few new reforms in the banking system.
