The Indian government yesterday named insider Urjit Patel as the new governor of the Reserve Bank of India, to replace popular central banker Raghuram Rajan when his term ends in September.
The promotion of deputy governor Patel ends weeks of feverish speculation by the Indian media since Rajan caught investors off guard in June by announcing he was leaving to return to academia.
The naming of an insider to the top job suggests the government hopes to continue the approach of the much-admired outgoing chief – dubbed “rock-star Rajan” – when he steps down on September 4.
“Dr Urjit R Patel new governor of RBI,” Frank Noronha, principal spokesperson for the Indian government posted on Twitter.
One of four RBI deputies, Patel, 52, currently runs the central bank’s monetary policy department, working closely with Rajan, who is credited with taming inflation and tackling India’s mountain of soured bank loans.
“The Appointments Committee of Cabinet has approved the appointment of Dr Urjit R Patel as governor, Reserve Bank of India (RBI) for a period of three years,” a press note seen by AFP said.
The chief of the RBI is typically chosen by the prime minister in consultation with the finance ministry, making Patel the first governor to be chosen by right-wing Prime Minister Narendra Modi.
Prior to joining the RBI in 2013, Patel was an adviser with the Boston Consulting Group, spent a decade in the financial sector and was a president at Indian conglomerate Reliance Industries.
He has also worked as a consultant to the Ministry of Finance.
Like Rajan, Patel has the International Monetary Fund on his CV, having worked at the Fund in the 1990s on desks including the US, Myanmar and India.
He has an M Phil in economics from Oxford University and a PhD in economics from Yale University in the US.
Patel was a key architect of a switch to using consumer prices instead of wholesale prices to measure inflation, believing them a better gauge of volatile price changes.
Many economists hail this as one of the most important reforms brought in by the RBI since India’s economic liberalisation began in 1991.
Many economists lamented the departure of Rajan, who famously predicted the 2008 global financial crisis and whom Indian newspapers have jokingly likened to James Bond. But although interest rates are at their lowest level since 2011, there have been tensions with the ruling Bharatiya Janata Party (BJP) which has been pushing for deeper cuts, saying these would boost growth further.
Ashutosh Datar, chief economist, IIFL Institutional Equities said the appointment showed a desire to continue on the same course.
“Patel’s selection is a vote of confidence by the government in the monetary policy initiatives started by Raghuram Rajan,” he told AFP.
India’s economy expanded by 7.9% in the fourth quarter of 2015-16, the fastest of any large economy, while inflation has cooled from double-digit levels to around 6% on Rajan’s watch.
“Broadly this is a message of continuity. That should help markets react positively to the news,” Shubhada Rao, Chief Economist at Yes Bank in Mumbai told AFP.
“His sense of monetary policy would be keenly awaited. We will be looking out for his stance (at the next rate-setting meeting) in October,” she said.
The appointment of Patel, who has spent most of his career in India, should also appease more strident members of Modi’s Hindu nationalist government who criticised Rajan – appointed by the previous Congress government – as too foreign.
The BJP lawmaker Subramanian Swamy has called 53-year-old Rajan “mentally not fully Indian” and told him to “go back to Chicago” where he used to be a finance professor.
Rajan took the reins at the RBI in September 2013 at a time when India was struggling with a ballooning current account deficit, a plummeting currency and decade-low economic growth.
Many economists have praised his line on rate cuts for bringing down India’s inflation and he has been credited with stabilising the rupee and creating a stable environment for growth.
“The government has selected (Patel) with a focus on what is good for a stable economy,” said Arun Singh, Lead Economist at Dun & Bradstreet India.
“Now the central bank has to be more prompt in taking action against non-performing assets.”