Resignation & replacement

The resignation of RBI Governor Urjit Patel amidst a struggle with the government over the central bank’s independence was the unfortunate outcome of a long-simmering contest between the two parties over monetary policy. It may well be argued that even the non-renewal of Raghuram Rajan’s term before Patel’s incumbency was also predicated by a conflict over the perception of the RBI’s role. Patel’s resignation was seen to be coming for a while as differences within the Monetary Policy Committee came to light, as did the issue of the quantum of the reserve capital of the RBI and its strict Prompt Corrective Action norms against banks with high NPAs, which the government contends were curtailing lending.

All this is well known, and the manner in which the government and the bank have aired their grievances in public has brought no credit to those at the helm. What amounted to browbeating by the government has not succeeded. It only precipitated matters by bringing about the RBI Governor’s resignation. The government did not pay adequate heed to the message delivered in a speech last month by RBI Deputy Governor Viral Acharya, in which he stressed on the independence of the bank and that its reserves should be used for monetary and financial stability. Acharya had also cautioned against the ‘trampling of institutions’, a charge that would be hard to defend at the moment.

Urjit Patel was hand-picked by the Modi government, but he was unable to last his full term. The public attack on the institution, the recent rows and the new inductions in the RBI board reflected political rather than professional priorities. They cumulatively contributed to a position where differences snowballed. At a time like this, statesmanship was needed, but this was not to be. However, the PM and the FM’s public messages after the resignation did reflect restraint. Now that Shaktikanta Das has been appointed RBI Governor, he has his work cut out. The stakes are high, and the world is watching to see how the government and the new incumbent act to restore the confidence of the institution.