Ending months of speculation, the Appointments Committee of the Cabinet (ACC) on Saturday announced the appointment of Reserve Bank of India Deputy Governor Urijit Patel as successor to Governor Raghuram Rajan.
Dr. Patel will take up the top job for a three-year term on September 4, the day Dr. Rajan’s three-year term expires.
The choice of Dr. Patel reflects the government’s preference for continuity to the Rajan tradition. Dr. Patel, working closely with Dr. Rajan, is piloting India’s transition to a new monetary policy regime. The 52-year-old macro-economist was appointed deputy governor in 2013. Since then, he has been a key player in the RBI’s war on inflation.
According to a press note announcing the appointment, Dr. Patel was picked in a new, two-step selection process. “For the first time, a systematic approach and an objective mechanism have been put in place,’ it said.
New process In the first step, the Financial Sector Regulatory Appointments Search Committee (FSRASC) headed by the Cabinet Secretary P. K. Sinha made a shortlist for the consideration of the ACC. “It undertook an extensive exercise to suggest a panel of names to the ACC,” the note said.
Thereafter, the ACC comprising Prime Minister Narendra Modi and Home Minister Rajnath Singh, settled for Dr. Patel from a list of five names received from the FSRASC.
Union Finance Minister Arun Jaitley, who is not a member of the ACC, was in Mumbai on Saturday and could not be contacted for comments. Mr. Modi had discussed the appointment with the Finance Minister on Friday.
Dr. Rajan had announced, through a letter to the RBI staff , on July 18 that he would not seek a second term. The decision followed a campaign against him, especially on Twitter, in which he was termed ‘un-Indian’ and detrimental to India’s economy.
A top official told The Hindu that in the weeks preceding his letter to the RBI staff, Dr. Rajan had sent emails seeking clarity from the Prime Minister’s Office and the Finance Minister on his second term, emphasising that some of the tasks he had taken up were incomplete. These included the setting up of the Monetary Policy Committee and the bad loan clean-up process in the banking sector.
While the selection process of the Committee has since been initiated and is likely to be completed before the end of Dr. Rajan’s term, the banks’ bad loans clean-up will be completed only by March 2017.
Shortlist of five names
Preference for “continuity, especially in carrying forward the legacy of Governor Raghuram Rajan,” tilted the BJP-led NDA government’s decision in favour of Dr. Urjit Patel, who it named the 24th Governor of the Reserve Bank of India (RBI) on Saturday. Of the candidates in the reckoning, Dr. Patel, it was observed, would be able to demonstrate “maximum convergence” with New Delhi.
The Appointments Committee of the Cabinet (ACC), comprising Prime Minister Narendra Modi and Home Minister Rajnath Singh, picked Dr. Patel for the top job from a shortlist of five names it received from a search and selection panel.
The government wanted an economist rather than a banker at the helm in the RBI, a source involved in the selection process told The Hindu. “It hopes that Dr. Patel will balance the RBI’s inflation priority with that of creating jobs in the economy,” he said.
Hand-picked by Rajan
Dr. Patel, the senior-most Deputy Governor at the RBI, is the architect of the new monetary policy framework and is working closely with the Cabinet Secretariat and the Finance Ministry to ensure a smooth transition.
The responsibility for setting interest rates is being transferred from the Governor to a six-member Monetary Policy Committee (MPC), three of whose members are being appointed by the government. The main mandate of the central bank is being formally defined as targeting inflation to bring it under the four per cent level (+/-2 per cent). Dr. Patel was picked by Dr. Rajan to head the RBI committee that had made these recommendations and suggested that the central bank abandon its focus on the wholesale price index for its inflation management and adopt in its place the consumer price index.
It won’t hurt that Dr. Patel is from a community that the BJP is at pains to mend its relationship with in Gujarat, where elections are due by end of next year.
Earlier this week, the Financial Sector Regulatory Appointments Committee (FSRASC) headed by Cabinet Secretary P.K. Sinha sent the names to the ACC for its consideration. The committee first met in July and readied a long list of all the possible candidates to succeed Dr. Rajan and then, earlier this week pared, it down to a shortlist of five names for the consideration of the ACC. It did not conduct interviews or rate the individual candidates. The five names were forwarded to the ACC in no order of preference. “The five candidates on the shortlist sent to the ACC were not ranked or rated by the FSRASC…no order of preference was specified… the selection of Dr. Patel is purely by the ACC,” an official source said.
