By
Anjan Roy
The
underlying story around the sudden resignation of the governor of the Reserve
Bank of India (RBI) is not about what has happened, but what hasn’t.
Dr Urjit Patel did not resign when the
tussle had peaked. He had in fact dug in his heels on one of the points of
contention, that is, sharing the spoils of the RBI reserves between the
government and the bank. Instead of any impromptu transfer to the government,
the matter has been referred to an expert committee which is putting it in the
backburner for the time being. Dr Patel did not flood the system with fresh
liquidity and instead chose to release money in calculated doses. The two
issues of difference were, so to say, papered over.
Why
then, did he choose to resign now? It may be remembered that RBI did not have
the tradition of promoting deputy governors to the position of governor
whenever the top position fell vacant. Earlier, for example, when the term of
an earlier governor, PV Subbarao’s term was not renewed during the UPA regime,
the seniormost deputy governor, Rakesh Mohan, was not elevated. Rakesh Mohan
left when Raghuram Rajan had stepped in. Years earlier, Amitabha Ghosh, a
former chairman of Allahabad Bank, was brought into RBI as deputy governor and
when the incumbent governor left, he was elevated to discharge the functions of
the governor but was quickly replaced by a next full-fledged governor.
In
case of Dr Patel he was elevated to the governor’s position straightaway. Dr
Patel was an insider in more than one sense, in a way. He was with the RBI for
a while and in fact headed a committee during the tenure of Raghuram Rajan,
which set the mechanism to be followed for formulating monetary policy. His
professional qualifications and abilities beyond doubt qualified him for the
high position. He is related to the first industrial family of the country, the
Ambanis, and was a fellow Gujarati. Possibly, the thinking was that he could be
prevailed over to the dominant point of view. But then, is his departure now
also is an indication of the changing alignments at these stratospheric levels?
Secondly,
until now, the man who most effectively raised the pitch of the so-called clash
between the government and the RBI into a public debate has not left. On the
contrary, the departure of Dr Viral Acharya, deputy governor, was so far denied
officially by the RBI and he remains in place. That is unfortunate.
In
his enthusiasm for advocating the independence of the central bank from the
government, Dr Acharya compared the Indian situation to that of Argentina when
the central bank governor of that country had resigned in protest against the
Argentinian government to paw on the bank’s reserves. Following the departure
of the central bank governor, the Argentinian currency had crashed severely and
the country was in a financial crisis.
Not
that the resignation of Argentinian central bank governor was the fundamental
cause of the country’s misery. It was in deep trouble before that event and the
tiff between the central bank and the government was only symptomatic of the
deeper malaise.
India
did not have any similar financial crisis, apart from the sporadic liquidity
crisis emanating from the defaults of the largest non-banking financial
company, IL&FS. There were admittedly other issues with the financial
sector, including the bulging non-performing assets of the banking sector. But
if anything, the government as well as the RBI were by and large on the same
page on these issues, excepting some differences in views on the liquidity
crisis, which was affecting the small and medium sector particularly hard.
Fortunately
for India, despite these doomsday-portrayals, the economy was not really
hurling straight into a crisis or the rupee was sinking against other major
currencies. If anything, the rupee had gained in strength since then and had
even crossed the psychological level of low 60s in between. Even after the
state election results, which, in fact, give an indication of possible
uncertainties and change of regimes at the centre, did not dent the financial
markets so severely, closely on the heels of the resignation the RBI governor.
The
surmise is that the Indian economy is not that fragile and investors also admit
that. However much the difference, someone as senior as a deputy governor in
the Reserve Bank should not have taken such a sharp line in a public speech and
he must have condoled for it.
Now
that the governor has left a sudden vacuum, the government will have to step in
to fill it. But until then, the essential function of the RBI must go on. The
December 14 board meeting of the RBI will also have to be held where some of
the thorny issues were to have been discussed. It will have to be seen how the
interim functioning plays out, particularly because some views would have to be
taken on re-setting interest rates.
At
the end of the day, Urjit Patel’s term as the head of the Reserve Bank of India
would surely be reckoned as one of the most tumultuous time. The sudden
decision on demonetisation was thrust upon him almost immediately after he took
over the reins. Certainly, some of the worst board members of the Reserve Bank
were foisted upon to breathe down his neck. Without them around, the governor
might not have left peremptorily. GST was introduced and the economy had to
adjust to this entirely new and immensely cumbersome system to begin with.
Non-banking financial sector were expanding much too fast for comfort. The
bubble had burst, which RBI is accused of having failed to detect in time. But
then, everything was not prickly, there were positive sides as well. After all,
he had Arun Jaitley as finance minister and not P Chidambaram. (IPA Service)
The post Wheels Within Wheels In RBI Changes appeared first on Newspack by India Press Agency.
