Goodbye Raghuram Rajan, welcome Urjit Patel

Patel was serving as RBI’s deputy governor since January 2013 and was in charge of monetary policy.

Rajan said the ranking of the RBI governor, now at cabinet secretary level, needed to be commensurate with the role – an issue that is believed to have played a part in Rajan’s unexpected announcement in June that he would not pursue a second term.

He has taken over charge from Rajan effective from September 4, 2016.

Three years before the 2008 global financial crisis, an Indian economist named Raghuram G Rajan+ presciently warned a skeptical audience of top economic thinkers that excessive risk threatened the entire global financial system. But countries could become “trapped” by fears that when they eventually raised rates, they “would see growth slow down”, he said.

He could also face pressure to ease up on a $120 billion bad-debt clean up, which has eroded bank profits and slashed bonuses.

He wanted to study bachelor of economics at Delhi’s St Stephens College, where incidentally he gave his last public speech as RBI Governor, but “succumbed to the sunk cost fallacy” and studied electrical engineering at IIT Delhi, where one of his lectures later as the central banker created a ruckus due to his comments on “tolerance”. “I don’t think it’s fair to say that it’s because of tight policy that the government wanted to move on”, he said.

Since January 2015, Rajan has cut lending rates by 150 basis points (bps) but banks have only cut their interest rates by about half of that. “The inflation objectives recently set for the RBI by the Government are an example of what is needed”, he said.

He was ably assisted by his deputy – now his successor Urjit Patel – in keeping a tight leash on inflation, earning criticism from the industry as well as others, including many BJP functionaries.

Mumbai: Urjit Patel, the new governor of RBI who has maintained a contrasting low-profile to outspoken and rockstar-like Raghuram Rajan, has his immediate task cut out – finishing the “unfinished agenda” of his predecessor on completing “deep surgery” of banks and winning the war on inflation.

Not only has Rajan brought the bleeding rupee back to strength, he also battered down the inflation fangs to 6 per cent from double-digit levels, leading to a cheer in fixed income markets with falling yields. But he also said that he would not focus exclusively on manufacturing as the solution to joblessness.

On various entities seeking oversight over the central bank’s activities, he said the government-appointed RBI Board, which includes ex-officio government officials as well as government appointees, should continue to play its key oversight role.