Urjit Patel, Reserve Bank of India (RBI) deputy governor, will take over as the central bank’s new head, ending two months’ speculation about Raghuram Rajan’s successor.
“Urjit R Patel has been appointed as the new governor of Reserve Bank of India (RBI),” a finance ministry statement said on Saturday.
Patel’s appointment can bring continuity to monetary policy in the country. He was Rajan’s deputy when Rajan had repeated face-offs with the political establishment for ignoring calls to cut interest rates. Rajan told the government in June that he will return to teaching.
Patel will assume office as the 24th RBI governor for three years on September 5, a day after Rajan’s term ends.
As India’s top banker, Patel’s primary duty is to keep prices stable and ensure credit flow to companies and individuals. He will lead a team of about 17,000 and draw a salary of about Rs 200,000 per month besides allowances and perks.
The RBI regulates banks, prints money and prevents volatility in the foreign exchange market. It is also the government’s banker and lender of last resort.
Patel (53) is a PhD from Yale University and has worked at the International Monetary Fund (IMF), The Brookings Institution at Washington and the Massachusetts-based Boston Consulting Group.
Patel, who has been the deputy governor since January 2013, has been key in framing the monetary-policy framework that the central bank has adopted. It makes taming inflation the central bank’s primary priority.
Patel headed a committee that in 2014 recommended targeting retail inflation to tame unstable prices, shifting the focus away from wholesale prices.
The new framework will remove speculation in RBI’s interest rate decisions.
The RBI and the government have set a new retail inflation target of 4% for the next five years with an upper tolerance level of 6% and lower limit of 2%.
High inflation hurts people’s buying power, while low levels can indicate poor demand and weak economic activity.
Such an approach has become standard practice in many matured economies, such as Britain, where the central bank sets interest rates according to an inflation target set by the government.
Patel will be the first governor to oversee interest rate decisions by a monetary policy committee (MPC), a six-member panel chaired by the RBI governor to decide on interest rates.
The governor will not enjoy a veto power, but will cast vote in case of a tie.
The decision of the committee — three each nominated by the government and the central bank – will be binding on the central bank. Currently, the RBI’s Monetary Policy Department (MPD) assists the governor in formulating the monetary policy. Views of key stakeholders in the economy such as the finance ministry and advice of the Technical Advisory Committee (TAC) contribute to decisions on the repo rate—the rate at which the central bank lends to banks.
The governor can override decisions.
Patel was with International Monetary Fund (IMF) between 1990 and 1995 and worked at the US, India, Bahamas and Myanmar desks.
He was on deputation (1996-1997) from the IMF to the RBI and provided advice on development of the debt market, banking sector reforms, pension fund reforms, real exchange rate targeting and evolution of the foreign exchange market.
He was a consultant (1998-2001) to the ministry of finance, department of economic affairs, New Delhi.
Some of his previous assignments include: president (business development), Reliance Industries Limited; executive director and member of the management committee, Infrastructure Development Finance Company Limited (1997-2006); member of the integrated energy policy committee of the Government of India (2004-2006); and member of the board, Gujarat State Petroleum Corporation Limited.
Between 2000 and 2004, Patel worked closely with several central and state government high-level committees, which worked on matters ranging from direct taxes to reviewing infrastructure, telecommunications, civil aviation reforms and pensions.
He has authored technical publications, papers and comments in the areas of Indian macroeconomics, public finance, infrastructure, financial intermediation, international trade and the economics of climate change.