Coraggio, governor Patel!
Urjit Patel's economics and central banking credentials are as mainstream and orthodox as one could imagine
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The recent announcement of the appointment of Urjit Patel to succeed Raghuram Rajan as governor of the Reserve Bank of India (RBI) is welcome on many counts. It has rightly been welcomed by commentators across the board and across the political spectrum.
First and foremost, Patel is as serious and credible a central banker as they come, with seriously impressive academic credentials—degrees from the London School of Economics, Oxford and Yale University. Before joining the RBI, Patel acquitted himself with distinction at the International Monetary Fund, and has been a non-resident fellow at Brookings Institution in Washington, DC, a prestigious and influential think tank.
What is more, after having joined the RBI, Patel chaired and guided to fruition a celebrated January 2014 report intended to “revise and strengthen" India’s monetary policy. The Patel report, famously, recommended the adoption of an explicit inflation-targeting policy regime, which has been adopted and is now RBI’s official policy. Thus, there is no figure more associated with the current monetary policy orthodoxy in India than Patel, with the possible exception of the outgoing governor, who commissioned the report in the first place and threw his considerable intellectual heft and political savvy behind its recommendations.
Whatever one may think of inflation targeting as a monetary policy regime, what is beyond doubt is that it is a transparent and observable objective for policy which creates accountability for the policymaker. Thus, quite apart from the technical economics debate, which remains unsettled, there is considerable merit from a political economy perspective in fixing a simple policy regime, the conduct of which can be easily observed by the public and scrutinized by experts. Unlike monetary targeting, which it supplanted, anyone can see if the central bank is achieving its inflation target.
This is looking forward. Looking back, after the somewhat unseemly manner in which the announcement of Rajan’s departure came about, for which the current governing party no doubt bears its fair share of the responsibility, rumours flew thick and fast about his possible successor. Fears were expressed in some quarters that Rajan might be replaced with an unorthodox successor, while others fretted that the choice might instead be a mediocre and pliant bureaucrat all too ready to do the government’s bidding. While the former concern was entirely ungrounded in my judgement, the latter would have been more difficult to discount out of hand.
The selection of Patel, therefore, lays such concerns to rest in one fell swoop. His economics and central banking credentials are as mainstream and orthodox as one could imagine, and his international education and experience—to say nothing of his Kenyan birth—give the lie to the notion that the current government pays short shrift to global credentials and has some sort of nativist streak when it makes key policymaking appointments.
Patel’s appointment also repudiates the canard that Prime Minister Narendra Modi’s economics team is thin on talent as compared to erstwhile Congress-led governments. As Columbia economist Jagdish Bhagwati remarked in reaction to the Patel appointment, the Modi government, to the contrary, has a stellar economics team, numbering, apart from the newly appointed Patel, the vice-chairperson of NITI Aayog, Arvind Panagariya, NITI Aayog member Bibek Debroy, and chief economic adviser, Arvind Subramanian. This is to say nothing of smart economists within the ranks of the upper echelons of bureaucracy who are directly involved with economic policymaking, most notably T.V. Somanathan, joint secretary in the prime minister’s office.
The other welcome departure from the Rajan era is that with Patel, we may expect a central banker who will stick to his remit and refrain from the temptation to use the considerable weight of his position as a bully pulpit from which to hold forth on a range of issues unconnected with his responsibility as central bank chief.
As I remarked at the time of the furore over Rajan’s departure, being a sober, sensible and responsible central bank governor precludes, or ought to preclude, the urge to project oneself as a freewheeling public intellectual with views on everything under the sun from history to current politics. Those who believe otherwise, and I am mystified that such folk can do so with a straight face, will be at a loss to explain the reticence of central bank governors in advanced economies such as the US, UK, Canada and elsewhere.
Fed chairperson Janet Yellen, for instance, has rightly refused to be drawn out in public on the US presidential election campaign, nor has she commented in public fora on social ills confronting the US that are unconnected with monetary policy.
Cut from the same cloth, one can be sure that Patel will not venture forth into philosophical maundering, but stay focused on the job. And that itself entails considerable challenges, not least, establishing and maintaining the credibility of the monetary policy regime and ensuring the smooth functioning of the soon-to-be constituted monetary policy committee which will oversee it.
If we know anything about Patel, it is that he will hit the ground running come September and plunge ahead with the tasks at hand.
Coraggio, Governor Patel!
Every fortnight, In the Margins explores the intersection of economics, politics and public policy to help cast light on current affairs.
Comments are welcome at views@livemint.com. To read Vivek Dehejia’s previous columns, go to www.livemint.com/vivekdehejia
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