Urjit Patel is new RBI Governor

Raghuram Rajan's abrupt announcement of his departure as governor of the Reserve Bank of India came as a nasty surprise to many, especially his fans in the investment community, but the way Urjit Patel was chosen as his successor has been anything but. The government's decision to promote the existing RBI deputy governor signals its preference for policy continuity and commitment to low inflation, and it is a move that will be seen as protecting the RBI's independence.

Ending a long speculation, Urjit Patel, a Deputy Governor at the RBI, was named as the next chief of India's central bank to succeed outspoken Raghuram Rajan, whose tenure was marked by tough measures to control inflation and headline-making statements. Patel is the optimal choice for RBI Governor considering the fact that he worked closely with Dr Rajan in implementing key policies to combat inflation, manage non-performing assets of banks, manage liquidity and forex reserves and recapitalise PSU banks, among others .

Challenges ahead

Aside from controlling inflation, Patel will have to follow through on efforts to clean- up banks ‘bad loans’ so that they can once again support the investment needed if India is to keep its place as one of the world’s fastest growing economies. Also, Patel will have to deal with the problem of mounting non performing assets (NPAs) of banking sector and take forward the cleaning process his predecessor Raghuram Rajan initiated.

 Urjit Patel's focus on various issues

ON INFLATION

- Bringing down government-induced aggregate demand in budget proposals helps bring down inflation expectation, drive private investment in the medium term.

- There has been an excessive reliance on monetary policy in the absence of the requisite fiscal retrenchment in the fight against inflation.

ON INDIA'S FISCAL POSITION

- One form of expenditure growth mitigation could be a phased expansion in entitlement coverage so that the impact on the budget is spread over several years.

ON FOREIGN INVESTMENT

- More stable and durable inward investment can be expected if legislation is passed to allow higher foreign investment in insurance companies in India and to lift voting rights of foreign investors in Indian banks.

ON GOODS AND SERVICES TAX

- Implementing a comprehensive GST should not be delayed.

 "Institutional investors both domestic and foreign would welcome the Indian government's appointment of RBI Deputy Governor Dr. Urjit Patel as successor to Dr. Raghuram Rajan.

"It signals a seamless continuity in the policies pursued by the RBI to conduct its monetary policy in an independent manner."