Goodbye Raghuram Rajan, welcome Urjit Patel

Urjit Patel has been chosen as Raghuram Rajan’s successor because he demonstrated competence as deputy governor in charge of monetary policy Many are projecting Urjit Patel’s reticence and reluctance to give public speeches as his biggest quality that facilitated his appointment. Photo: Indranil Bhoumik/Mint.

Live mint 09 September 2016 | E-Paper News Update. 

In August 2013, at the 10th Nani A. Palkhivala Memorial Lecture on ‘Five Years of Leading the Reserve Bank—Looking Ahead by Looking Back’, a few days before he stepped down as the Reserve Bank of India (RBI) governor, Raghuram Rajan’s predecessor D. Subbarao dwelt on the issue of autonomy and accountability of the Indian central bank.

Reacting to the extensive media coverage on policy differences between the government and the RBI, Subbarao first quoted former German chancellor Gerard Schroeder, who had once said, “I am often frustrated by the Bundesbank. But thank God, it exists,” and then made the famous comment: “I do hope finance minister (P.) Chidambaram will one day say, ‘I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists’.”

He was referring to Chidambaram’s outburst in October 2012 when the RBI chose to keep its key policy rate unchanged to fight high inflation, a day after the finance minister unveiled the government’s fiscal consolidation road map.

“Growth is as much a challenge as inflation. If the government has to walk alone to face the challenge of growth, then we will walk alone,” an upset Chidambaram had said, reacting to the RBI’s second-quarter policy review.

On Saturday, delivering his last speech as RBI governor at St. Stephen’s College in New Delhi, Rajan said: “I would go a little further. The Reserve Bank cannot just exist, its ability to say ‘No!’ has to be protected.” At the same time, he also made it a point to mention that “the central bank cannot become free of all constraints; it has to work under a framework set by the government”.

Dwelling on the RBI’s independence, Rajan said, “When the responsibilities of the RBI are fuzzy, its actions can continuously be questioned. Instead, if the constitutional authorities outline a framework for the responsibilities of RBI, it can take actions consistent with those responsibilities and be held to outcomes.”

An outspoken Rajan also said, “It is dangerous to have a de facto powerful position with low de jure status,” and suggested that there may be some virtue in explicitly setting the governor’s rank commensurate with the position as “the most important technocrat in charge of economic policy in the country”.