Urjit Patel’s Infrastructure Stints Will Be Invaluable For His Mint Street Role 

The Gujarat Infrastructure Development Board (GIDB) has been a nursery for several of India’s economic bosses through the 90s. It wasn’t surprising, then, that when a promising International Monetary Fund (IMF) employee left the organisation in 1995 to take up an assignment at the Reserve Bank of India (RBI), the nascent Board would trawl him up soon enough.

As a consultant at the RBI, Urjit Patel was providing advice to the Central Bank on banking sector reforms and development of the foreign exchange market. These were, however, almost futuristic works for the Indian economy just coming out of license permit raj. The financial sector was entirely dominated by the state-owned banks with mega trade unions that saw no reason to allow even a little bit of change in their offices. Computers were objects of display in the air-conditioned rooms of these banks.

But interesting work was beginning to shape up in the Gujarat in the field of infrastructure, itself a new word in the Indian business lexicon. Along with a clutch of bright officers like R.V. Shahi, who would later become Power Secretary, and Atanu Chakraborty, current Director-General of Hydrocarbons, Patel got into new concepts like private-public partnership. He would emerge with a keen understanding of infrastructure finance— a lesson that has stayed with him. So when the government of India conceptualised the Infrastructure Development Finance Corporation (IDFC) in June 1997, to lead private capital to commercially viable infrastructure projects, Patel was one of its first appointments. The simultaneous role with GIDB thereafter continued for several years.

In fact, even as the world has pored over his work in monetary policy in the past 24 hours, the key landmarks in the career of the 24th Governor of RBI are to be found in his stints in the infrastructure sector— he spent almost six years with IDFC. And all through this period and beyond, his name has popped up on almost all infrastructure sector reports that the government had commissioned. For Rakesh Mohan, who alternated between the RBI and the Finance Ministry in the first decade of 2000s, and Deepak Parekh, the chairman of HDFC, who often took turns to chair most of those committees, Patel was one of their first choices as member. His taciturn nature ensured that the credit for the reports was never diluted.

Patel has served on the Prime Minister’s task force on infrastructure, on integrated energy policy, the committee on civil aviation reforms and the Power Ministry’s expert group on state electricity boards, often overlapping the assignments. Having also spent a sizeable period in the interregnum as President, Business Development at Reliance Industries (between 2007 and 2011) where he examined the fields of gas and oil and their impact on climate from the perspective of a private sector investor, you could say he is India’s first RBI Governor with an unmatched reading of the infrastructure sector. There has been none before, including his formidable predecessor. And certainly none before whose emails include a .com, an .edu and a .gov.

These experiences will shape the template for Patel when he drives into Mint Road on 5 September, since the Indian economy’s challenge is now again infra-centric. Brookings Senior Fellow in Global Economy and Development Program, Amar Bhattacharya, estimates that the G20 countries can break the straitjacket of monetary and fiscal policies only through a government-supported mega programme of infrastructure development. The global market for such spend is close to $90 trillion, of which India will account for a large chunk, he says. For Finance Minister Arun Jaitley, the space Patel creates for driving infrastructure spending will be a key metric to assess the Governor’s work.

Patel’s challenge consequently is how to make Indian banks spend money on some of these projects without impairing their non-performing assets (NPA) more; how to keep foreign investors interested in these gargantuan construction programmes and, while doing all these, keep the inflation rates low to ensure the rates of interest remain manageable. In one of his rare interviews, Patel has given his assessment of how he plans to do it:

“What we have to think through in infrastructure is that predominantly funding has to be from domestic sources, because infrastructure investment produces services which are non-tradeable, that is, not much by way of foreign currency-denominated revenue. For most of this investment, the entire income stream is in domestic currency. Therefore, it is almost inevitable that much of it is funded domestically.”

These are the words of a man who has been swimming in the sector for a long time. Patel is lucky that he comes to RBI after the storm of NPAs flying all round in the books of the banks has largely blown over. In the last year and a half, Raghuram Rajan has forced all the banks to reveal the worst of their lending records to the world. It has made the banks plumb depths of ratings that would have seemed impossible with the belt of sovereign guarantee they carried. He has already made it clear that spending big on energy sector makes sense. “If we get some of our policies aligned in infrastructure, especially on the energy side, we would be surprised on the up side,” he wrote in an article in Business Standard in 2012.

There is no new crisis creeping into the Indian monetary and fiscal universe. The risks, it would seem, have all been factored in, unlike when Rajan came in. Patel has to deliver on the possibilities.