Ending days of speculation, deputy RBI Governor Urjit Patel has been appointed as the new Governor of the Central Bank. He will succeed Raghuram Rajan. Patel, the 24th RBI Governor, will serve a three-year term with effect from September 4.
“The Appointments Committee of Cabinet has approved the appointment of Dr. Urjit R. Patel as Governor, Reserve Bank of India for a period of three years,” said the statement from the government. The appointment has been made on the recommendation of the Financial Sector Regulatory Appointment Search Committee (FSRASC) headed by Cabinet Secretary.
Dr Rajan`s term ends on September fourth, after he surprised everyone in June with a letter to RBI staff announcing his decision to return to academics and not be available for a second term.
Who is Urjit Patel?
One of the RBI`s four deputy governors, Patel, 52, has been running the central bank`s monetary policy department since 2013. He was re-appointed in January for another three years as deputy governor in charge of monetary policy. Dr. Patel obtained his BA from the London School of Economics and pursued his Ph.D. from Yale University. He has M Phil from Oxford University.
Seen as a close lieutenant to Rajan, Patel headed a committee that introduced landmark changes including a switch to inflation-targeting and adopting consumer prices as the new benchmark instead of wholesale prices. The changes he helped drive are considered to be among the most significant monetary policy reforms since India opened up its economy in 1991.
Patel, whose remit at the RBI included managing money markets, has faced criticism from market participants however, with some traders and bankers complaining that he kept liquidity tight at a time when the RBI was lowering rates, starving banks of cash.
Patel, according to a Nomura note, is considered a `hawk` on his monetary policy stance.He has also worked with the International Monetary Fund and has experience in energy and financial sectors too.
The new governor takes over at a time when inflation has bust out of the top end of that range. Consumer inflation accelerated to 6.07 percent in July, the fourth consecutive month it has stayed above the RBI`s near-term target of 5 percent by March.
Aside from controlling inflation, the new governor will have to follow through on efforts to clean-up banks` bad loans so that they can once again support the investments needed if India is to keep its place as one of the world`s fastest growing economies.
Patel will also have to navigate India`s tricky political scene. Right-wing members of the ruling Bharatiya Janata Party (BJP) had criticised Rajan for some of his speeches on economic matters and for not cutting interest rates faster.
Reactions on appointment
“I am sure Urjit Patel will successfully lead RBI and contribute to India’s economic development,” said finance minister Arun Jaitley after the appointment of new RBI Governor.
Urjit Patel as next RBI Governor will bring “great continuity” at the central bank, his fellow Deputy Governor S S Mundra said, describing him as “a man of clear opinion who may bring some changes”.
“We all are very happy. Being a colleague, he brings great continuity and familiarity. He has a clear understanding of what is going on,” the Deputy Governor said.
Mundra further said his colleague Patel has been continuously involved with RBI and has a clear opinion on all issues.
“Every new leader will bring his or her own thinking. There could be some addition, (in) some processes little bit changes. It’s normal in transition. We are looking for great continuity and that provides great comfort,” he said.
Patel was today appointed the next Governor after Raghuram Rajan demits office on September 4. He was first appointed Deputy Governor for three years in January 2013 and was given extension this January.
Welcoming the appointment, SBI Chairman Arundhati Bhattacharya said: “Patel has been at the helm of institutionalising the inflation targeting regime in the monetary policy framework. His appointment signals continuity of policy intent, both on part of RBI and the government.”
Bhattacharya was one among the seven names speculated to succeed Rajan as the 24th Governor.
Former RBI deputy governor K C Chakrabarty stressed on the need for continuity in the central bank’s policies. Recently, Rajan said there are several unfinished tasks.
“It’s the best that has happened. He is competent and he will be able to deliver,” Chakrabarty said, adding that Patel having worked in the system understands the environment, circumstances and policy measures “much better”.
In his comments on the appointment, former advisor to erstwhile Planning Commission Pronab Sen said “this is indicative of continuity. International investors will like that”.
NRI billionaire and Vedanta chief Anil Agarwal expressed hope that the new Governor would continue the policy of the incumbent Rajan.