Tough road ahead, demands cautious leadership
The Narendra Modi Government’s decision to appoint the Deputy Governor of Reserve Bank of India (RBI), Urjit Patel, as the new Governor of the central bank on Saturday clearly shows its intention to continue the outgoing Governor Raghuram Rajan's policies to aggressively fight inflation and continue a stable rupee accompanied by more cash injections into the financial system. The continuation of the current RBI policies will obviously help overcoming an expected negative impact on the bond market for sure. Picking someone like him who has been on the RBI's present roster of leaders and also working as an insider since 2013 alongside the departing Governor Rajan believes to reassure both the debt and equity markets that there will be no sudden change in policy making at the apex bank. As Rajan has won respect for building confidence of the investors during his tenure, the Government can initiate more reforms in the vital sectors of the economy which it is already doing, can very well support Patel, without shaking the country's growing spree.
As the RBI's Deputy Governor, Patel was the key official responsible for the bank's shift towards a monetary policy based more on consumer inflation. In the past, he was the one who chaired the RBI panel which recommended the bank use a target range of the consumer price inflation rate. Though the RBI tried with other indicators like the employment, growth, inflation and exchange rate, before finally implementing his fine suggestions, all of them had supposedly heightened the concern of the investors and to a significant level, the uncertainty was raised during those days. Thus, it is hoped that his coming will provide a big boost to the country's higher growth path as India is currently witnessing a slew of structural reforms wherein a stable and sensible leadership at the bank is the need of the hour. He needs to be more cautious as the ongoing structural overhauling is rightly leading towards a massive transformation of India's ossified financial system. With this transition on the move, the RBI is also cleaning up the bank's balance sheets and now Patel's approach should be more focused on both reform and perform so that the growth cycle will not suffer at all.
Since June as the announcement of Brexit came, the European market as well as the global, have shown uncertainty and a sharp rise in the growth forecasts have been also downgraded. The aftershocks of Brexit have not affected India much, but the new Governor has to see that our emerging markets do not have to face the uncertainty which may drive away many investors in the coming days. He will have to work on the lending rates of the banks as small companies still complain that loans are very expensive. Another tricky issue that demands apt handling is the mounting debt of the public sector banks, which is on the rise. Finally, how he goes along with the new six member monetary policy committee, wherein half the members are Government appointees, will have to be watched carefully as it is a radical departure on the policy making procedure of the RBI in the past. Hope the insider will play his wickets safe.