Urjit is politically correct

THE Parliamentary Standing Committee on Finance quizzed RBI Governor Urjit Patel on Tuesday, a sign of a healthy democracy that signifies the supremacy of Parliament over all autonomous institutions, including the banking regulator. It seems Patel appeared before the panel ill-prepared when he ducked key questions from the committee and sought 15 days to respond on certain controversial issues — MSMEs facing liquidity crunch, several public sector banks unable to lend due to the RBI’s stringent and prompt corrective action, and the amount of reserves with the central bank. Possibly, the Governor exercised political acumen in seeking a way to evade unnecessary arguments on the spot, which could have potentially further embarrassed the government. Even otherwise, seasoned bureaucrats prefer to communicate in writing rather than engaging themselves in any verbal debate with lawmakers.

In fact, most concerns have been overtaken by events as a nine-hour board meeting of the RBI last week had defused the volatile situation that had developed following a complete breakdown of communication between the Finance Ministry and the bank. Even the matter pertaining to the determination of an appropriate capital base for the central bank has been referred to a joint committee. However, no committee can legitimise any government move to appropriate part of the Rs 10 lakh crore reserves of the central bank without amending the RBI Act; and on this, the parliamentary panel can play a decisive role.

Patel confessed in front of the panel that demonetisation adversely impacted the economy, even if he believed that its impact was transient. He, however, ignored a key component of the Indian economy — the informal sector — when he reportedly told the parliamentary panel that the economy was faring better than the pre-demonetisation period. Perhaps, the regulator is not much concerned about this sector, which was devastated due to the ill-conceived move. In fact, the RBI and the government should quantify the damage done to the informal economy after November 8, 2016, and suggest remedial measures.