RBI chief resignation major dent to credibility

In a major dent to the image of the NDA government as well as the credibility of the governance of the national monetary system, the Reserve Bank governor Urjit Patel put in his papers, nine months before the end of his scheduled tenure. He cited personal reasons for his resignation, but it is clear from his action — coming just four days ahead of RBI’s crucial board meeting — that he has chosen to walk away because of increasing interference in the workings of the RBI. The relations between the country’s central bank and the government have been fraught for a few months now with major questions arising about the pulling of strings with regard to getting RBI to hand over some of its considerable reserves in order to plug the fiscal deficit and also ease lending norms to a large body of small and medium enterprises, which have been under financial and liquidity pressures.

There had been credible rumours for months about Patel’s impending departure from the bank where he had served as deputy governor under Raghuram Rajan and as an independent governor since September 2016 after the former refused to seek an extension of his term. The reluctant governor had been convinced into staying on after a long meeting on November 19 when all important issues were said to have been thrashed out with the bank agreeing to ease a bit of liquidity. Coming in the wake of Patel’s deputy having made public the attempts of government to step on the RBI’s toes with regard to money and credit policies, it did appear a compromise had been struck and peace had been bought. It is, however, clear as crystal that Patel has been troubled by the pressures brought on by the rulers with regard to bending their way to suit their perceptions on fiscal management ahead of crucial national general elections and about the state of the economy itself.

The autonomy of the central bank is the crucial issue here. What does it say of the nation when we have lost one glittering economist who was made to feel unwanted after one term and another studious economist who was a bulwark of RBI, besides losing a chief economic adviser who did not see eye to eye with the Prime Minister and his plenipotentiaries. It is the government’s vested interest in forcing the RBI to take economic decisions to suit its political objectives that is the culprit. The responsibility of the regulatory bank is to do with the Indian macroeconomy and its place in the global order of things and its functions include tending to trade and currency fluctuations and tackling imbalances.  

It appears the rulers, in a desperate hurry, kept pressing for lower repo rates, greater liquidity and easy loans in order to fuel the growth they wanted essentially for political reasons. The regulator was being badgered in an unseemly manner, perhaps even with the invoking of Section 7 of the RBI Act, to dance to the tunes of political masters. No wonder independent economists have walked away from the hot seat, but this will have international repercussions.