Arvind Panagariya can be everything that Raghuram Rajan was not for govt

Arvind Panagariya, the former chief economist at the Asian Development Bank and the current Vice-Chairman of the NITI Aayog, is learnt to be the front-runner to become the next governor of Reserve Bank of India (RBI). Outgoing governor Raghuram Rajan will vacate the position on 4 September.

Panagariya holds a PhD from the US-based Princeton University and is a protege of prominent economist Jagdish Bhagwati.

Arvind Panagariya can be everything that Raghuram Rajan was not for govt

Arvind Panagariya at NITI Aayog. PTI

Before taking over as vice-chairman of Niti Aayog, he had worked for the World Bank, International Monetary Fund, World Trade Organisation, and the United Nations Conference on Trade and Development in various capacities. He also had a stint as a professor of economics and co-director, Center for International Economics, University of Maryland at College Park.

Panagariya has also written and edited 10 books. The latest India: The Emerging Giant was published in March 2008 by the Oxford University Press, New York.

However, here are four aspects that show Panagariya is likely to be everything that Rajan was not for the Narendra Modi government:

Staunch supporter of Modi: Panagariya has been one of the most vocal supporters of 'Gujarat model of growth' and free-market economist. Much before Narendra Modi came to the national scene, Panagariya voiced his support for his economic policies in Gujarat.

Panagariya and Jagdish Bhagwati, another world-renowned economist, co-authored India's Tryst with Destiny: Debunking Myths that Undermine Progress and Addressing New Challenges'. The book used Gujarat Model as a metaphor for development primarily driven by growth and private entrepreneurship. On the other hand, they used 'Kerala Model' as a metaphor for primarily redistribution and state-driven development.

During the last Lok Sabha elections in 2014, Modi's 'Gujarat Model' was one of the main poll planks of the Bharatiya Janata Party. As a staunch supporter of right-wing in general and Modinomics in particular, the government would not have to worry about Panagariya exceeding his mandate to comment about sensitive issues like 'intolerance' if he is indeed made the RBI governor.

Pitched for deeper cut in interest rates: In Janaury, Panagariya told Reuters in an interview that the RBI's repo rate should be 50 basis points lower than it was then. The policy rate stood at 6.75 percent then and now it stays at 6.5 percent. RBI governor Raghuram Rajan has justified his interest rate stance many times over in the recent past.

Wanted inflation target to be revised higher: Panagariya had also said the time was right to review the RBI's target for consumer price inflation of 4 percent, with a band of 2 percentage points either side. He was of the view that monetary policy framework should be reviewed and suggested that the lower bound of the RBI's inflation target range was on the low side.

He said the effective 2 percent lower end was a level typical for advanced economies but unusual for emerging nations. "If revisions have to happen, they will have to be upward," he had told the news agency pointing out that the target has been there for one year.

However, Rajan had rejected the suggestion saying, "Typically one doesn't change the framework on a yearly basis."

If Panagariya's words in the Reuters interview are any indication, he is likely to give what the government wants desperately to take forward their reform path - a rate cut.

Favours easy fiscal deficit targets: Panagariya has also been a proponent of increased capital spending to boost growth. He had also previously advocated relaxing fiscal deficit targets.

This too is unlike Rajan, who had a hawk's eye on the quality of spending by the government. In fact, the government's decision to stick to fiscal deficit target of 3.9 percent for last year was a result of Rajan's insistence on reining in expenditure as a condition to cutting rates.

There is no doubt about Panagariya's credentials or qualification to be the central bank governor.  But the question is whether his economic policies are the ones that goes well with the RBI's functioning.

With PTI

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Updated Date: Jul 12, 2016 13:04:11 IST

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