NATION ON NOTICE, NO ROOM FOR DISSENT

RBI GOVERNOR Urjit Patel resigns; the resignation was possibly on hold since the breakdown of relations with the government; Patel chose to announce it on the eve of Assembly election results

From the CBI to the RBI, things are veering out of control and the Centre is unable to hold.

The latest in the saga of institutions under siege is the RBI: Governor Urjit Patel has resigned, citing personal reasons. But it is apparent even to the politically naïve that the resignation is more in protest against the erosion of autonomy of the central bank and the audacity of an elected government which wants to ride roughshod over dissent. Embedded in this are ominous portents, which RBI Deputy Governor Viral Acharya had said in a speech could be "potentially catastrophic" for the economy.

In all probability, Urjit had tendered his resignation some time back, when there was a buzz in the media about the ‘‘irreversible breakdown in relations between the RBI governor and the government".

According to sources, Urjit decided to put the move on hold after a meeting with the Prime Minister, on an assurance that the differences would be reconciled. With the government refusing to back off on prickly issues which impinged on the soul of the central bank, Urjit decided to play along and resign on a day of his choosing. Finally, he dropped the bombshell when it was least expected of him – one day before the Assembly results are out.

Incidentally, Urjit was hand-picked by the BJP-led government after his predecessor Raghuram Rajan was denied a second-term. This government has the dubious distinction of having forced two RBI Governors to quit under duress. His resignation was being speculated right from the time the government cited a never-before-used provision of the RBI Act to get him to consider its views on relaxing lending norms for segments such as small and medium enterprises, appropriate size of reserves the central bank must maintain and easing norms for weak banks

According to sources, Urjit did not want to go down in history as a Governor who failed to protect the RBI as an institution. Only last month the government had said it was discussing an "appropriate" size of capital reserves that the central bank must maintain, even as it denied seeking a massive capital transfer from the RBI. It was the blatant double-speak on the part of the government which proved to be the last straw on the proverbial camel’s back.

At that time, too, there were other sane voices which were rightly wondering, what is the "tearing hurry" to "fix" the capital framework of the RBI, when the ruling dispensation has just four months to complete its term? But the Modi government has buried its head in sand. Incidentally, one of the most virulent critics of the central bank was RBI board member Swaminathan Gurumurthy, who was recently appointed by the government. Gurumurthy has close RSS leanings and in his recent comments he had challenged the RBI on multiple issues, especially the central bank’s approach towards liquidity management. Gurumurthy firmly believes that if the right to print currency had been vested with the government, the ongoing liquidity issues could have been handled better. It goes to the credit of Patel that he had cruised through the storm over demonetisation, announced two months after he took charge. He had to brave the ire of citizens, economists and industry experts who did not agree with what was an entirely political move with an eye on the UP Assembly election. Likewise, he came under extreme pressure when he undertook the balance sheet purge of banks. The process for monetary policy decision-making also underwent a radical change under Patel, with the introduction of a six-member monetary policy committee. It was a panel headed by Patel which had recommended that this body be given charge of pegging the interest rates. That will be his lasting legacy. Extremely candid in his approach, he harped on the non-disclosures of non-performing assets by both private and public sector banks; he also highlighted the lack of regulatory powers in oversight of governmentowned banks. The most proactive step of the RBI was the February 12 circular this year which overhauled the entire resolution mechanism and forced banks to make disclosures on initial stress and take them to insolvency for failure to resolve the matter within 180 days. Patel had more than eight months of the first three-year tenure left and was eligible for a second term, as was given to several of his predecessors, barring Rajan. ‘‘On account of personal reasons, I have decided to step down from my current position, effective immediately,” the 24th RBI Governor said in a statement. “It has been my privilege and honour to serve in the RBI in various capacities over the years,” he added.