Subramanian Swamy and his 3-million strong Twitter army seem to have made peace with the Reserve Bank of India (RBI) reckoning a friend, not an adversary, in Raghuram Rajan’s successor Urjit Patel. The Twitter exchanges between the maverick BJP MP and his supporters/ followers suggest that Swamy is in approval of Patel’s appointment. This proves that Swamy’s issue with Rajan (Swamy ran a campaign against Rajan to oust him) was more on account of the fact that he was a UPA-appointee, and mainly because of that, rather than differences on the governor’s interest rate policies.
After the Narendra Modi government announced Patel as Rajan’s successor, Swamy said it would be ‘idiotic’ to criticise Patel. Swamy finds Patel ‘desi’ enough despite he being born in a foreign country (Kenya), assignments with foreign organisations and his stints with some of the prominent corporate houses in India and abroad (Reliance Industries, Boston Consulting Group, IDFC). Patel, according to Swamy, is unlike ‘mentally not fully Indian’ Rajan who was born here but lost his Indian-ness eventually when he continued to be a US green card holder.
The interesting fact is that Swamy has even better reasons to target Patel if high interest rates are the point of contention. This is because it was Patel’s proposal that laid the foundation of Rajan’s inflation battle in 2013-14.
The central bank began focussing on CPI (consumer price inflation) as the core price indicator for the purpose of monetary policy formulation and kept the interest rates high and unchanged till January, 2015 ignoring the loud noises from the pro-growth lobby of economists, industrialists and politicians. Even after that, a significant reason why the central bank went slow in reducing rates (it cut rates by a total 150 basis points since then) was the caution exercised by the central bank’s monetary policy team on the inflation front. Here again, Patel, the deputy governor in charge of monetary policy played a crucial role to form that assessment.
The central bank’s inflation target with a 4 percent (plus or minus 2 percent) in the medium term was later duly endorsed by the government. Unless ‘RBI governor’ Patel drastically changes his policy stance so far, we would see a more hawkish central bank than Rajan in the days ahead. Future interest rate cuts will be a rarity then till the time the inflation genie is bottled and sealed forever. That would mean Swamy’s major problem with Rajan (wrecking the Indian economy with high interest rates and causing unemployment) apply equally to Patel also. But, Swamy is fine with that. Why?
It’s simple politics. If Swamy launches a missile against a Modi-appointed RBI governor candidate, it will most certainly take the shape of a lethal boomerang that can shake his position in the party circles further and affect his future prospects in the government significantly. Already, Swamy’s experience in messing with NDA-appointees in crucial posts (chief economic advisor Arvind Subramanian and economic affairs secretary Shakti Kanta Das) wasn’t a pleasant one. At the very beginning itself, Swamy was restrained by his arch rival the Finance Minister Arun Jaitely and top brass in the BJP forcing the economist-turned-politician-turned Hinduvta icon to significantly soften his stance on both Subramanian and Das. Swamy wasn’t happy with this but had to fall in line. On Sunday, the MP launched a fresh attack on CEA saying “Arvind S called Namo a mediocre leader, efficient in riots & asked US to grill India in WTO for drug cos mkt access, is CEA! Tolerance!! (Sic)."
Once can link Swamy’s public attacks and the subsequent embarrassment caused to the government to him being sidelined during the recent cabinet reshuffle despite having decades of experience in the areas of finance, commerce and academia. Swamy would be shooting himself in the foot if he targets Patel. Hence it isn’t hard to figure out the origin of the white flag Swamy is waving towards Patel.
For the Modi government, Patel is the safest bet at this point. The deputy governor’s elevation to the RBI governor’s post has been welcomed by economists and industry patrons like NR Narayana Murthy. A soft-spoken, hardworking individual, who wouldn’t bother to talk on issues beyond his pay grade, is precisely what this government wanted in a RBI governor.
By appointing Patel, the Centre has smartly hedged a slew of potential problems of discontinuity in the central bank’s policy course a new governor may have faced, issue of preparedness when huge foreign currency deposit redemptions are due in the next few months, likely volatility in the international markets if Brexit, China and US conditions turn bad for emerging markets and, most importantly, the criticism of not having a credible and internationally accepted face to succeed the ‘rock star’ economist Raghuram Rajan.
Some have praised Patel’s past stints with private organisations and proximity to Modi. But no one can dispute Patel’s commitment after he took over his job at the RBI and his impressive academic credentials -- not even his enemies.
Patel has been around in India in various roles for one-and-a-half decades and has gained an image of a hardworking, visionary economist who gives his best to his job. In this context, any attack from Swamy against Patel would have been self-destructing for the BJP leader.
Seen in this perspective, Swamy’s instant approval of PM Modi’s pick is least surprising.
(Disclosure: Reliance Industries owns Network18 that runs Firstpost.)