Rajesh Singh
The appointment of Urjit Patel as the new Governor of Reserve Bank of India (he takes over in the first week of September) has been analysed and welcomed from an economic point of view by experts. But there is a political message as well. This message is a slap on the face of those who had criticised the Modi Government for having ‘insulted’ incumbent Governor Raghuram Rajan and compelled him into not seeking a second term because it was uncomfortable with his frank positions on monetary policies. One senior opposition party leader had even blamed the Prime Minister’s silence for Rajan’s exit.
In any case, the friction that may have developed, at least in public perception, had less to do with Rajan’s monetary positions and more with his remarks that many saw as unnecessary and outside his domain — such as the one on ‘growing intolerance’, and on Make in India. But even these were not seen by the Government as serious enough to merit censure. In fact, Jaitley made it a point, after Rajan announced his departure at the end of his tenure, to say that the country looked forward to his expertise as and when the situation would warrant.
Urjit Patel has worked closely with Rajan on all the issues that critics of the Union Government have claimed had caused friction between the RBI and the Centre. He has been associated with developing a monetary policy, flexible inflation targeting and cleaning up the books of public sector banks loaded with massive debts. For all practical purposes, Patel has been Rajan’s right-hand man at the central bank. If the Modi Government was indeed upset with Rajan, and to the extent that it allegedly created conditions for his departure, why would it have appointed his confidant? The appointment actually vindicates the high praise which both Prime Minister Narendra Modi and Finance Minister Arun Jaitely have recorded for Rajan’s performance.
The second political message lies in the process of selection. For the first time, a Cabinet Secretary-led panel — the Financial Sector Regulatory Appointment Search Committee (FSRASC) — was tasked to shortlist the name of candidates to succeed Rajan and send them to the Government. This eliminated to a large extent needless discretion that lay with the Government. It also indicated the Government’s commitment to a process-driven decision-making. The Government had the names the panel recommended nearly a month ago, and it took its time to take the final call. But the process was very much above the board and hailed by observers for introducing a level of transparency not seen before in such appointments.
The third political message has to do with the Government’s confidence in the in-house competence of the RBI. Raghuram Rajan and his two immediate predecessors, Duvvuri Subbarao and YV Reddy, came from outside the RBI structure. Rajan was plucked from abroad while the other two were IAS officers. Reddy did serve as RBI Deputy Governor, while Subbarao was the Finance Secretary before he was given the governorship. Had he not taken up the job, he could well have ended as Cabinet Secretary. There is nothing wrong in having lateral entrants, since such appointments add to the depth of the functioning of organisations. But the fact that Urjit Patel, being an insider, has been selected to the top position, adds to the morale of the RBI.
The fourth political message is a more subtle one. Critics of the Government had claimed that Rajan was ‘hounded’ because he was a UPA appointee. In the first place, Rajan was allowed to complete his term even after the new NDA regime assumed power. Both the Prime Minister and the Finance Minister had a robust working relationship with him. There were certain differences, of course. But as Rajan has often pointed out, a complete lack of difference would not have been good for the system. A certain level of difference brings out the best solution in a given circumstance.
In any case, the friction that may have developed, at least in public perception, had less to do with Rajan’s monetary positions and more with his remarks that many saw as unnecessary and outside his domain — such as the one on ‘growing intolerance’, and on Make in India. But even these were not seen by the Government as serious enough to merit censure. In fact, Jaitley made it a point, after Rajan announced his departure at the end of his tenure, to say that the country looked forward to his expertise as and when the situation would warrant.
Second, Subbarao was a UPA appointee but had had several run-ins with the Finance Ministers of his time — P Chidambaram and Pranab Mukherjee. They were grave enough for Subbarao to devote large space in his recently released book, Who Moved My Interest Rate? He mentions several of these encounters, and expresses pain that Chidambaram, who had pushed for his appointment, later developed cold vibes with him. He speaks of interference in the RBI’s functioning by Ministers, though he admits to having received unstinted support from then Prime Minister Manmohan Singh.
In sum, Urjit Patel’s elevation is a vindication of much that Rajan did and achieved. But Patel will do well to come out of Rajan’s larger-than-life shadow and strike out on his own. There is no reason to believe this will not happen.
(The writer is editorial director of nationalistoneline.com, English)