Sunday, August 21, 2016

My thoughts on the new RBI governor Dr. Urjit Patel

Note: These are my personal thoughts on the incoming RBI Governor, and in no way do they reflect the official view by my employer. Do not treat this as an investment recommendation, and anyone reading this blog should do their own investment research. 

You all might have noticed that the Reserve Bank of India ("RBI") has appointed Dr. Urjit Patel as the next RBI governor, after the term of the current Governor (Dr. Raghuram Rajan "RRR") expires on September 4th, 2016.

While there has been a lot of ink split on the new appointee, (see this excellent profile about him -> and given he is a sitting Deputy Governor (one out of four who hold that post) this spells continuity.
This picture says it all

On the policy front, he is expected to be on the hawkish side, given it was his own recommendations that suggested RBI formally target inflation, with a target of 4% +/- 2% and maintain a real rate of of 1.5% over the CPI (which rules out immediate rate cuts) given the last inflation print was 5.7%.

Another important distinction I would like to draw about Urjit Patel which probably is unique compared to the others in running for the post, or previous RBI Governors.
While he has impeccable academic credentials (M.Phil from Oxford, PhD from Yale)

He is neither a career academic (like predecessor Raghuram Rajan, or Arvind Subramanian and Arvind Panagariya) ...
Nor is he a career bureaucrat rising the rungs either through RBI, or civil services. (like DV Subbarao, or other current Deputy Governors R. Gandhi, H.R. Khan, and Shaktikanta Das who was in the fray)
Also he isnt a career banker (like SBI Chairperson Arundhati Bhattacharya, HDFC bank Chairman Deepak Parekh, ex ICICI Chairman K.V. Kamath)

Given his wide variety of experience, both in government and private sector (at IMF, advisor to Boston Consulting Group, on board of Reliance Industries and non executive director in Gujarat State Petroleum Limited) he should be more industry oriented, than a pure academic.

Typically (my speculation, and non scientific observation) - Academics hold on to their ideas, and do not work easily with the Government (remember the not to subtle differences of opinion between Raghuram Rajan and the Finance Minister Jaitley), while career bureaucrats probably bend too easily to the wills of the government. (And probably are more sympathetic to the previous ruling party - which was in power for most of their career)

At this juncture, Indian policy making is in a state of flux. There are new taxes (GST) replacing the old, new Bankruptcy Code has been passed by legislature, while corporates are crippled with high level of debt, and banks saddled with the NPAs. More over RBI itself will have a new structure.

Hence rather than a specialist in a single domain, you need some type of an all rounder. (Or as Nate Silver from says - Hedge Hog and not a Fox)
Also - with the new RBI structure (6 member committee on Monetary Policy, consisting of one Governor, 2 Deputy Governors and 3 appointees from the Government), the RBI Governor has a lesser power than before, a person from private sector, and a relative outsider would be better suited to getting consensus in the committee.

Another thing - Urjit Patel has been media shy, and unlike RRR, would not be speaking to media on areas outside his domain (policy making, religious intolerance ...) which is the reason why the Hard Right Wing of the BJP turned against RRR.

Another bit of insight is, Urjit Patel was born in Kenya, and has lived majority of his life in the West, (which might bring barbs from the Hard Right wing of the ruling party about being an outsider) and only took up Indian citizenship when he was appointed as a Deputy Governor in Jan 2013.
Though this speculation has been shot down for the moment, as the extreme right has endorsed him (for now)

Also - while being foreign born, he is a native Gujarati speaker, same as the Prime Minister (Narendra Modi) and BJP party president Amit Shah, and rumored to be close to Amit Shah. Thus despite being hawkish on monetary policy he might be able to better communicate his views to the PM, who (its well known) isnt as articulate in English. (Was this a reason he got the job?)

The Government has appointed a Governor, now the speculation moves to who the 3 government nominees would be, (if rumours are to be believed - some of the names mentioned above, and a couple of Sell Side Investment Bank Economists are in the fray)

Anyways - I wish the new RBI Governor good luck, and hopefully he steers the Indian Economy well.
As for the previous governor, I am a big fan of his writing, (read both of his books) and looking forward to his next one. 

Books by Raghuram Rajan
Saving Capitalism from Capitalists 
Fault Lines

Books by DV Subbarao
Who Moved My Interest Rate

Disclaimer - I am a mere observer of the Indian Financial Market, and by no means an expert. Any thoughts, counter arguments and brickbats are welcome.

1 comment:

Anonymous said...

What about far-left and extreme left wing people's opinion about this appointment? They obviously didn't like that Rajan's term is not extended, but this appointment in isolation should be ok for them.