The buzz in the corporate world and amongst policy wonks is that Raghuram Rajan opted for a graceful exit. Highly probable reasons for Raghuram Rajan’s exit are the Government didn’t see eye to eye with him on monetary policy issues and an extension was unlikely. His statements on India being an ‘one-eyed king’ despite it being the fastest growing economy in the world and the need to be circumspect when asked about the Indian economy caused much heartburn in the Government circles and ministers. This issue came into limelight when the Government was forced to give its opinion on what was otherwise a non-issue or a matter that could have been easily kept off the media glare. We will give you an insight into the story.
A closer look at the dilemma
As Dr. Urjit Patel steps into Mr. Rajan’s shoes, he would be closely watched and evaluated for his take on matters pertaining to inflation targeting and interest rate cut. Furthermore, inflation data continues to spring a surprise with an above 6 percent number despite monetary policy initiatives focused on inflation targeting. Dr. Patel will have to take a call on whether 4 to 6 percentage band is still the sacred target to be maintained or monetary policy easing is required to give a fillip to the economy. In his 3-year tenure that is soon coming to an end on September 04, Mr. Raghuram Rajan reduced CRR and SLR rates but an interest rate cut remained a more critical entity in the press rather than becoming a reality. Dr. Urjit Patel will have to decide on policy continuity for results that had been achieved in the past but require a quick-fix that would stop the CPI number going further beyond the target band. This issue formed the outer bound for inflation for much of Mr. Raghuram Rajan’s tenure or an interest rate cut that would spur the economy in times where uncertainty plagues economies. Dr. Patel being an RBI insider, having been a Deputy Governor at the RBI makes him an ideal choice. He is abreast with the considerations that led to the policy decisions taken during Mr. Rajan’s tenure. Now, that he wears the Governor’s hat, it remains to be seen whether he opts for continuity for his former commander’s policy or decides to give a new direction to it with decisions that will now carry his authoritative stamp of approval rather than a nod from a deputy who works behind the scenes.