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This should be Urjit Patel’s agenda as RBI Governor: Experts

Dr Urjit Patel took over as the 24th Governor of the Reserve Bank on Sunday. On the occasion of handing over charge, outgoing Governor Raghuram Rajan had an interesting parting gift for his successor — a memento bearing the Indian rupee with the words ‘Hamari Zimmedari’ (our responsibility) inscribed on it.

Renowned economist TN Srinivasan, also Professor Emeritus-Economics at Yale University and mentor to Dr Patel, said that the new governor should continue his predecessor’s inflation fight while also balancing it with growth. The central bank’s independence should also be high on his priority. “RBI governor should have the freedom to say a ‘no’ if the fiscal authority tries to push the economy in an inappropriate direction,” he told CNBC-TV18.

Along with Srinivasan, Standard Chartered Head – Treasury Ananth Narayan, JP Morgan Economist Jahangir Aziz and Edelweiss Chairman and CEO Rashesh Shah talked about their expectations from the incumbent’s stint as central bank chief and outlined areas he should focus on.

Below is the transcript of the discussion with CNBC-TV18\’s Latha Venkatesh.

Q: Now we have a new governor Urjit Patel, what do you think should be his foremost, the first three things on his agenda?

Srinivasan: One of the major things that the governor has to address is keeping the inflation under control. Under control means it has to be at a level which is appropriate from the perspective of consumers of this economy and it has to be appropriate to give adequate incentives for the producers of the economy to generate the growth that the economy desires.

So, there is a balancing task which is hard and we have not always been successful over the decades of our history in balancing the two.

However since the last governors reign we have managed to bring the inflation down from what it was in double digits to a level that is appropriate and it is on a glide path towards an even lower inflation rate.

So, from the perspective of inflation we might say as of now even though there are some signs of pickup in inflation, nonetheless it looks as if stabilising inflation has been successful.

However on the other hand about growth, it is unclear whether we are on a path that would be appropriate given the hoopla about India being the fastest growing economy in the world, whether our realities, fundamentals of the growth process are where they should be were India to be the fastest growing economy in a sustainable fashion for next several years to come?

So, I have some concerns on the real side of the economy namely on the growth side of the economy. However the new governor is quite aware of what the situation is and I am confident that he would be addressing this issue very seriously.

One other issue that I might flag is an issue that was highlighted by the outgoing governor, namely the independence of Reserve Bank of India (RBI). For decades or so the RBI governor who took his directives from the finance ministry, so any fiscal deficit the finance minister chose, the RBI governor dutifully provided the liquidity to cover that deficit.

Fortunately that situation had changed when YV Reddy was the governor of the RBI, first time the governor and the finance ministry and the RBI came to an agreement about the extent of financing that the RBI would do. Now that is only one part of it but the RBI governor should have the freedom to say no if the fiscal authority tries to push the economy in a direction which the governor thinks is not appropriate.
That requires independence, not only independence to use whatever instruments that the governor thinks are appropriate for controlling the situation, whatever situation that might be emerging but also to say to the finance minister that this particular proposal that you are making is not appropriate. That is to say no, is an important aspect of a efficient and able governor of RBI and that he cannot do unless he doesn’t have independence.