“As Urjit [Patel] keeps telling me, we are neither hawk nor dove. We are owl,” outgoing Reserve Bank of India Raghuram Rajan once said on the constant interpretation of RBI statements by the media.
The owl, which is a symbol of wisdom, always stays vigilant when everybody else is asleep.
In appointing Mr. Urjit Patel as the 24th Governor of RBI, the government has ensured that continuity of policy in the country’s central bank as he was the deputy governor in-charge of the monetary policy
Mr. Patel was appointed as the Deputy Governor in-charge of monetary policy in January 2013 by the previous United Progressive Alliance (UPA) government for three years. The appointment was made despite the then Governor D. Subbarao recommending existing Deputy Governor in-charge of monetary policy Subir Gokarn to continue. In his recently released memoir, ‘Who moved my interest rate,’ Mr. Subbarao recounted that the then Finance Minister P. Chidambaram wanted ‘fresh thinking’ in RBI, while deciding on Mr. Patel.
While no RBI Governor’s term was extended by different government, but the Bhartiya Janata Party-led National Democratic Alliance (NDA), extended Mr. Patel’s tenure as Deputy Governor for three years in January 2016.
Mr. Patel (53) has close to three decades of experience across sectors including financial, energy and infrastructure sectors.
But his biggest task came when Mr. Raghuram Rajan made him the head of a committee to review of monetary policy framework in 2013. With retail inflation staying at double digits for two years, monetary policy faced severe criticism.
Retail inflation
Retail inflation, if stays high for a longer time, impacts the consumer more by denting real income.
Mr. Patel who holds a doctorate in Economics from Yale University and is a graduate of the University of London and Oxford, made radical recommendation which redefined how inflation needs to be anchored.
The committee proposed inflation targeting as the central bank’s prime objective and changed the main gauge for inflation to consumer price index based inflation from wholesale based price index. It also proposed a committee based approach for setting interest rate which will held responsible if inflation target is not met. And unlike many committee reports, which are put on backburner, the government and the RBI moved promptly to implement the recommendations like making consumer price-based inflation as the anchor for monetary policy. The monetary policy committee which will be headed by Mr. Urjit Patel as Governor of RBI, is expected to be announced shortly.
Many economists have mainly attributed the fall in inflation to soft global oil prices, as the country imports two-third of its requirement. However, as one former central bank official told The Hindu, “We now know what is inflation rate that the RBI is comfortable with, and will not hesitate to take steps if it tends to go out of the price band.”
