The honeymoon didn’t last long. The development is amazing, sudden and shocking. Although Patel cited “personal reasons” for resigning, if you read between the lines you I knew that this development it was anything but the “personal reasons”. This comes on the heels of a growing struggle between the central bank and the Union government over autonomy and the independence of the RBI and the RBI Governor. It also comes before the crucial board meeting, where the government was likely to ask for more concessions from the RBI. For the record, the Kenyan born Patel’s three-year term as RBI governor was due to end in September 2019. With his resignation, he became the first governor in the post-liberalisation era to step down before the end of his mandate is fourth in history. of the RBI. The previous resignation came in 1975.
Appointed new governor
Although the Government was quick to appoint Shaktikanta Das as the new RBI Governor, it seems that the damage has already been done to the government’s ability to respect talent. Das is the 25th Governor of the Central Bank. A former economic affairs secretary from 2015 to 2017, Das worked closely with the central bank. He is currently a member of the Finance Commission of India, and the representative of the government at the Group of 20 summits.
Coming back to Patel’s resignation, it is a serious embarrassment for the government. Tweets from Prime Minister Narendra Modi and Finance Minister Arun Jaitley praised Patel and praised him for his work. It is an attempt to show that the latter really resigned only for personal reasons. However, these laurels seem largely unconvincing.
Prime Minister Narendra Modi said, “Urjit Patel is an economist of a very high caliber with a deep understanding and insight into macro-economic issues. He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI has brought financial stability.”
Finance Minister Arun Jaitley wrote: “The government recognizes with a deep sense of appreciation the services rendered by Dr. Urjit Patel to this country both in his capacity as Governor and Deputy Governor of the RBI.”
Former RBI Governor Raghuram Rajan observed that due to his resignation “Dr Patel made a statement and this is the last statement that a regulator or a servant can make. We have to go into the details because there was an impasse , which forced this final decision … this is something that all Indians should be concerned about because the strength of our institutions is really important.” P Chidambaram, former Finance Minister said: “Sad, not surprised, by the resignation of Dr. Urjit Patel. No self-respecting scholar or academic can work in this government.”
Patel’s resignation will raise questions about the Centre’s ability to work with independent economists. A day after Patel’s resignation, economist Surjit Bhalla resigned as a part-time member of the Economic Advisory Council to the Prime Minister (EAC-PM). Earlier, Niti Aayog Vice-Chairman Arvind Panagariya and Chief Economic Adviser Arvind Subramanian had resigned.
Roots of discord
The simmering discontent between RBI and the government could be seen in the speech of Dr. Viral V Acharya, Deputy Governor of RBI during his AD Shroff Lecture in Mumbai on October 26, 2018. He warned “Using central bank reserves to paying government bonds is not a positive development and the concept of excess reserves is certainly open to debate. It weakens the balance sheet of the central bank.” He had reasoned the risks of undermining the independence of the central bank as potentially catastrophic, a kind of “self-target”, since it can trigger a crisis of confidence in capital markets that are exploited by governments to manage and their finances.”
Four days later, Finance Minister Arun Jaitley during an event hosted by the US-India Strategic and Partnership Forum (USISPF) accused the RBI of sleeping on the job to check indiscriminate lending by public sector banks between 2008 and 2014.
For quite some time now, reports have been circulating in the public space that the Government was planning to invoke Section 7 of the Reserve Bank of India Act to ask the central bank to hand over some of its surplus reserves to put them to more productive use. . . The matter is pending before the RBI Board and is likely to be taken up in its next meeting probably on November 19. Will the now scheduled meeting be held or not in view of the sudden resignation of the RBI governor is a big question?
To put it in order, the Minister of Finance said clearly “We do not need extra funds from any other institution to finance our fiscal deficit. We are very clear that is not the intention of the government. And we do not say that in the next six months give me some money.” However, he said the surplus funds could be used for poverty alleviation programs by future governments in the coming years. The RBI is reported to hold a massive 9.59 lakh crore in reserves. He also added that “The government’s point of view is that we respect and always maintain autonomy within the framework of the laws that have been established.” Subhash Chandra Garg, Secretary of the Department of Economic Affairs, tweeted: “A lot of misinformed speculation is going around. The government’s fiscal math is completely off track. There is no proposal to ask RBI to transfer 3 ,6 or 1 lakh crore, as speculated”. The clarification came amid a report that the government is looking to transfer at least a third of Reserve Bank’s Rs 9.6 lakh crore reserves.
All eyes on the new governor
Meanwhile, speculation about the timing of Dr. Patel’s decision continues. He resigned on December 10, 2018, a day before the results of five assembly elections were to be announced and a few days before a meeting of the RBI Board scheduled for December 19. is it a bold statement to protect the autonomy of the RBI?
The priority for the government would be to tell the world that it stands for the autonomy of the institutions and does not treat the RBI as another government department.
Meanwhile, speculation about the timing of Dr. Patel’s decision continues. Questions remain whether the resignation is a bold statement to protect the autonomy of the RBI? All eyes are now on the new governor, Shaktikanta Das.