Evaluation of government decision
The decision to pick Reserve Bank of India Deputy Governor Urjit Patel as the successor to outgoing Governor Raghuram Rajan is a clear affirmation of the Centre’s commitment to ensure
policy continuity at the central bank.
That the man chosen for the top job at the RBI is a person who helped formulate crucial changes in the monetary framework, including the decision to target a specified inflation level as the
primary remit of the bank, reflects the administration’s focus on making price stability central to its economic agenda. Prime Minister Narendra Modi recently reiterated his backing for the 4 per
cent retail inflation target, at a time when the Consumer Price Index-based measure had accelerated to 6.07 per cent.
Major Challenges before new Governor
1. The first among many challenges that the new Governor will face will be the changed circumstances of monetary policy formulation. When Dr. Patel chairs the first meetings of the Monetary
Policy Committee — the six-member panel that is expected to start deciding interest rates from the October 4 policy announcement onwards — it will be interesting and instructive to see how
he helms the committee approach to rate-setting.
2. As the head of the banking regulator, Dr. Patel also inherits the ongoing clean-up of bank balance sheets. Unclogging the credit pipeline by helping resolve the build-up of stressed assets with
the country’s lenders and thereby improving monetary transmission are tasks that Dr. Rajan will now leave unfinished. Investors and markets alike will be keenly watching his successor’s
approach to expediting the process, especially given Dr. Patel’s past stress on fiscal restraint.