Urjit Patel: India replaces 'rock star' Rajan with 'low-key' banker

Reserve Bank of India (RBI) Deputy Governor Urjit Patel attends a news conference after the bi-monthly monetary policy review in Mumbai Image copyright Reuters

Continuity. That's the buzzword around India's new central bank governor Urjit Patel.

It's quite a departure from the fireworks that accompanied his predecessor Raghuram Rajan's appointment and surprise resignation.

The Kenyan-born, Western-educated Mr Patel will take the reins at the Reserve Bank of India next month.

He is expected to maintain much of the policy status quo but with less rocking of the political boat.

Other contenders for the post included ex-governor Rakesh Mohan, ex-deputy Subir Gokarn and State Bank of India chairperson Arundhati Bhattacharyya.

His appointment sends the right message, according to Vivek Dehejia, an economics professor at Carleton University in Canada and the co-author of Indianomix.

"Patel will be a classical central banker who will speak only on issues within his remit. And that is what a central governor should be doing," he told the BBC.

"The position of a central banker is to talk about monetary policy and he will hopefully not use that position as a bully pulpit."

Image copyright Getty Images

Political agendas

Mr Rajan, whose good looks and eloquence helped generate a "rock star" reputation, is bowing out under a cloud following very public clashes with the government.

Sharply critical at times about India's crony capitalism, he reportedly ruffled too many feathers and ended up feeling undermined at the RBI. But most market watchers agree that he left India's economy in better shape than when he came in.

Three years ago, the Indian rupee was in freefall against the US dollar, inflation was raging at double-digit rates and the banks were burdened by a mountain of bad debt.

Mr Rajan moved quickly to implement a tight monetary policy, address the current account deficit and reform the Indian banking sector. Once considered one of the world's "fragile five" economies, India is now among the fastest-growing.

Vishnu Varathan from Mizuho Bank believes that "political agenda and vested interest" usurped economic sensibility in India and that Mr Rajan should not have been let go before serving a second term.

"Extending the tenure of central bankers is ordinarily a given, and justifiably so, in view of long lags in monetary policy transmission alongside the need to manage policy through business cycles," he told the BBC.

"Opting to let Rajan's term expire risks being construed as a politically motivated move to rein in central bankers with an independent streak not aligned with the establishment - a perception reinforced by public criticisms of Rajan by politicians."

India's longest and shortest-serving governors
Governor Tenure
4. Benegal Rama Rau (1949-1957) 7 years, 197 days
3. C D Deshmukh (1943-1949) 5 years, 323 days
9. B N Adarkar (1970) 42 days
16. Amitav Ghosh (1985) 20 days
Source: Reserve Bank of India

So can Mr Patel live up to Raghuram Rajan's legacy?

Hawk, dove or owl?

Most accounts of Mr Patel have described him as a well-respected but "low-key" and "solitary" figure.

India's Economic Times newspaper headlined his promotion as "the silent revolution of an owl" and called him "a man of few words".

The pun, of course, being that economic commentators like to label policymakers as either a "hawk", who focuses on issues like clamping down on inflation, or a "dove", who looks to create more jobs.

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Media captionSameer Hashmi has the lowdown on what issues face new RBI governor Urjit Patel

They're opposites in the media but very much in tune with policy, Stephen Innes, a senior trader at currency broker Oanda, told the BBC.

"People tend to focus on Rajan's rock star or celebrity status but in fact, his hawkish stance and determined focus on inflation, while not winning many friends in political circles, in itself was a success story.

"Urjit Patel is cut from the same policy cloth and represents continuity in that regard. To that degree, the markets will likely price out much further easing possibilities in the near term."

However, some analysts say Mr Patel has a "higher and harder" bar to clear.

His biggest challenge will be tackling rural inflation, an old and stubborn foe, while trying to deal with uneven growth.

Consumer price inflation is currently running at more than 6%, which is above the government target of 4%, as higher oil prices feed into the economy.

"We think that Patel will make his own mark," Mizuho Bank's Vishnu Varathan said. "He is seen as the key architect of the inflation-targeting regime he is taking over, rather than inheriting it passively."

Changes afoot

Image copyright Getty Images
Image caption There's a changing of the guard at India's central bank

Major changes are scheduled to take place at the RBI under Mr Patel's watch, most notably, how interest rate decisions are made.

Formerly the remit of one man - the governor - policy changes will now be under the purview of a six-person committee.

But being seen as apolitical will help Mr Patel, argues Mr Varathan.

"A more policy-focused approach to extracting fiscal discipline will also allow him to establish his position as a central banker who engaged fiscal authorities without succumbing or agitating unnecessarily.

"The upshot is that Patel needs to be less concerned about emerging from Rajan's shadow and perhaps more on standing his ground. The shifting sun will take care of shadows."

Additional reporting by Sameer Hashmi in Mumbai

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