The government has announced the members of a new monetary policy committee
(MPC), the final step in a drive to overhaul 81-year-old central bank. Three independent economists named by the government on Thursday will join Governor Urjit Patel, his deputy in charge of monetary policy, and another central bank executive in determining borrowing costs. Each will have one vote and Patel will hold an additional tie-breaker, guided by a newly established inflation target. However, it’s unclear if the MPC
will undertake the next policy review on October 4, because rules require that the Reserve Bank of India
(RBI) announce a schedule of meetings at least a week before the first one.
Here’s an introduction to each of the members, starting with the independent appointees:
The October 4 policy review will be Patel’s first as governor, though he has more than three years of experience as a deputy in charge of monetary policy. Known as a fiscal conservative and an inflation hawk, Patel was the key architect of India’s MPC
and shift to inflation targeting. Investors will be keen to assess Patel’s outlook on price pressures; he was chosen by the government to replace Raghuram Rajan, who was accused by allies of Prime Minister Narendra Modi’s party of stifling growth by keeping interest rates unnecessarily high. While Patel hasn’t yet spoken publicly since taking charge on September 4, on August 9 he had said a "tad bit of flexibility" was endowed in the definition of India’s flexible inflation targeting regime. Law specifies a goal of four per cent within a two per cent to six per cent band, though Rajan had aimed to lower consumer price-gains to five per cent by March 2017 and four per cent a year later.
A professor at the New Delhi-based Indian Statistical Institute, Ghate was the sole member of the central bank’s technical advisory committee to be retained for the rate-setting panel. The TAC offered non-binding recommendations on monetary policy. He was also part of the Patel-led panel that recommended a shift to an inflation targeting regime and the establishment of an MPC; Ghate had said that given the new framework, there was "no other person better" than Patel to be governor. In a paper he co-wrote this year, Ghate argued that fiscal policy can mitigate the adverse effects of interest-rate shocks on the labor market; in a May interview he said India’s economy was operating below its potential. He obtained a doctorate in economics from California-based Claremont University following master’s degrees in applied mathematics and economics.
An economics professor at India’s top management school, Dholakia has served on various government and central bank panels including one that recommended the creation of a postal bank. In a 2015 paper, Dholakia and his co-writer argued that a policy of deliberate disinflation needs to consider the real cost of sacrificing output and employment, particularly when its magnitude is substantial. He has served as independent director on the boards of several companies, including state-owned Power Finance
Corporation and Gujarat State Petroleum Corporation Ltd. He was also independent director at Adani Enterprises, where he resigned from in May, as well as shareholder director at Union Bank of India.
The sole woman on the six-member panel, Dua is head of the economics department at Delhi University; she earned a doctorate in economics from the London School of Economics. A 2013 paper Dua co-wrote argued that weather shocks are transmitted from the commodity futures market to spot prices; her input could be crucial as food costs are the main driver of inflation in India. In a 2009 paper, Dua and her co-writers argued that while monetary policy was effective in containing inflation in developed economies by crimping demand, emerging markets also have to grapple with inflation stemming from supply shocks such as in food. "Consequently, policy measures undertaken by the monetary authorities in these countries should focus not only on the demand side but also on the supply side factors," they wrote. In another 2009 paper, Dua and her co-writers argued that the U.S. was too late in slashing interest rates, which increased the costs of the financial crisis.
An executive director at RBI, which he joined in 1985, Patra has advised on monetary policy. He holds a doctorate in economics from India’s top technology institute and undertook post-doctoral research in financial stability at Harvard University. In 2010, the International Monetary Fund published a paper co-written by Patra, where he argued that inflation is sticky in India when it sets in, irrespective of the source of price pressures.
A deputy governor at the RBI, Gandhi was put in charge of monetary policy when Patel got the top job. A career central banker, Gandhi reportedly joined the RBI
on the advice of his father, a farmer in the southern Indian state of Tamil Nadu. He also had a three-year secondment stint at India’s capital markets regulator, the Securities and Exchange Board of India. Rajan had argued that the vote-based system, which aligns RBI
with peers such as the Bank of England, will help diffuse pressure that was until now focused on the governor. The MPC
will need to navigate between the government’s likely expectations of an interest-rate cut in the face of slower economic growth and key state elections, and an inflation rate that had briefly breached the central bank’s target this year.