Mr. Rajan made his decision to step down in July, which was a surprise based on his achievements in the last three years. When he took the position as chief of RBI in 2013, the Indian economy was struggling: the exchange rate had fallen dramatically, GDP growth was the lowest since 2009, the stock market was declining, and inflation was in the double digits. However, with a series of astute monetary policy decisions, Rajan stabilized the market and protected economic growth. At one point, Indian’s GDP growth reached 7.5%, although there were criticisms about the change of statistical method, Rajan boosted foreign investors’ confidence in India and attracted more foreign-direct investment. As most people expected Rajan to stay, his leave may relate to the conflict between him and Prime Minister Narendra Modi’s party: the Bharatiya Janata Party (BJP).
Mr. Patel is expected to continue the policies which he had helped build under Rajan. His main challenge remains controlling the inflation rate target of 4%, which has been facing increasing pressure recently, as well as bad bank debt, which is increasing. He will also face some imminent interest rate decisions.
For most investors, Mr. Patel is probably the best choice for the economy as they do not want to see many changes in the short term in India. As India will shortly need to roll-over more than $20 billion in foreign currency bonds, a positive investor view will help ease this process. In general, as the fastest growing economy in the world today, India will attract more attention globally and the RBI and Patel, will continue to have their work cut our for them.