During his three years, Rajan has made classic use of public speeches to drive different concerns going beyond conventional monetary economics, cementing his position as one of the foremost public intellectuals in recent times.
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He could also face pressure to ease up on a $120 billion bad-debt clean up, which has eroded bank profits and slashed bonuses. Along with the government, Patel will have to come up with solutions that encourage bankers to take large haircuts and sell these assets. However, these can trap economies in a fear of psychosis that when they normalise the rates eventually could hurt growth and distort markets, thereby making a low interest rate policy hard to abandon.
Former Deputy Governor, Urjit Patel has been appointed as the 24th head of Reserve Bank of India.
When talking about the challenges for Patel as the Governor, it should also be kept in mind that his moorings are as monetarist as his predecessor Rajan’s were, and he is considered to attach the same importance to inflation control as did Rajan.
The Deputy Governor handling monetary policy department is also likely to be nominated to the new rate setting panel MPC (Monetary Policy Committee).
Rajan, who predicted the 2008 global financial crisis, also rejected claims that tight policy stance followed by him was the reason behind the government not obliging him with a second term. He left the benchmark repurchase rate at a five-year low of 6.5 per cent in August.
As Mint Street readies for a new sheriff, the three-year tenure marked with numerous controversies ended on Sunday for Raghuram Rajan – who sacrificed economics for electrical engineering in college and ended up doing a “deep surgery” of banks while at RBI. “I think we’ve done exactly what was needed”, he said adding the central bank should continue to prioritise low inflation.
Soon enough, Dr Singh was vindicated when Rajan focused on curbing inflation and succeeded in bringing it down to 3.78% by July 2015, the lowest in about 20 years.
It was in an interview with the New York Times that Rajan talked about his hopes of India finishing “the process of bank cleanup which is underway”. Rajan also issued two banking licences to Bandhan and IDFC, 11 payments banks and 10 small finance banks.
The RBI has a total equity of 32 percent of its assets and the government wants to draw this fund, which is a combination of contingency funds, capital and retained earnings, to bail out the cracked balance sheets of state-run banks. As the Economic Survey had pointed out, RBI’s equity capital which equals a third of its balance-sheet is much higher than the ECB’s 20%-indeed, central banks in the United States and the United Kingdom work with less than 2%.
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While Rajan is armed with degrees from IIT-Delhi, IIM-Ahmedabad and a PhD from MIT Sloan School of Management, Patel’s CV is equally impressive: He is an economist from Yale University, has worked at the International Monetary Fund from 1990 to 1995 and been a non-resident Senior Fellow at the Brookings Institution since 2009.
