Shock res­ig­na­tion: Pa­tel quits as RBI chief

The Pak Banker - - FRONT PAGE -

The cen­tral bank Re­serve Bank of In­dia Gover­nor Ur­jit Pa­tel has cited per­sonal rea­sons for re­sign­ing with im­me­di­ate ef­fect, but any­one who has fol­lowed the events of the last cou­ple of months will know it was any­thing but that. It was a pe­riod dur­ing which the Cen­tre and Re­serve Bank of In­dia were en­gaged in an un­seemly tus­sle over a clutch of is­sues that had a bear­ing on Re­serve Bank of In­dia's au­ton­omy, some­thing that Mr. Pa­tel had sought to pre­serve. As his pre­de­ces­sor Raghu­ram Ra­jan pointed out, when a pub­lic ser­vant re­signs, it is a sign of protest. Mr. Pa­tel's de­ci­sion clearly caught ev­ery­one by sur­prise as it came fol­low­ing per­cep­tions of a thaw in re­la­tions be­tween the Cen­tre and the Re­serve Bank of In­dia, af­ter an agree­ment was ham­mered out at a board meet­ing last month on some of the con­tentious is­sues, in­clud­ing a con­tro­ver­sial pro­posal to use the cen­tral bank's re­serves for fis­cal pur­poses. But clearly, the larger is­sue that di­vided the Cen­tre and the Re­serve Bank - which re­lated to au­ton­omy and the in­de­pen­dent func­tion­ing of the Gover­nor - was never fully re­solved. Mr. Pa­tel's res­ig­na­tion is a se­ri­ous em­bar­rass­ment to the Modi gov­ern­ment, which has scram­bled to make state­ments ex­press­ing sur­prise at his ac­tion and prais­ing him for his work. As at­tempts to sig­nal that it had noth­ing to do with Mr. Pa­tel step­ping down and to re­in­force that he did in­deed quit for per­sonal rea­sons, these re­marks were largely un­con­vinc­ing.

Pa­tel's res­ig­na­tion is bound to raise ques­tions about the In­dia gov­ern­ment's abil­ity to work with in­de­pen­dent-minded econ­o­mists, coming as it does fol­low­ing the depar­tures of for­mer RBI Gover­nor Raghu­ram Ra­jan, who was at odds with In­dia gov­ern­ment on many is­sues, and the sud­den res­ig­na­tions of Niti Aayog Vice-Chair­man Arvind Pana­gariya and Chief Eco­nomic Ad­viser Arvind Subra­ma­nian. It is true that Mr. Pa­tel's reclu­sive and non­com­mu­nica­tive style may not have en­deared him to some bankers, but his emi­nence as an econ­o­mist and his un­der­stand­ing of macroe­co­nomic is­sues is undis­puted. Gov­ern­ments have sparred with the RBI be­fore on the is­sue of au­ton­omy, but the Modi gov­ern­ment went one step fur­ther by start­ing con­sul­ta­tions un­der Sec­tion 7 of the RBI Act, which gives the Cen­tre the power to di­rect the Re­serve Bank of In­dia to act in spe­cific ways. The im­me­di­ate pri­or­ity now is for the Cen­tre to fill the breach without wast­ing time. Global in­vestors and the mar­kets are al­ready on edge, and they will be keenly watch­ing, along with the rat­ings agen­cies, how the Cen­tre han­dles this self-cre­ated cri­sis. The in­com­ing Gover­nor is bound to be judged, among other things, by per­cep­tions about his in­de­pen­dence. The Re­serve Bank of In­dia can­not be treated as if it is just an­other gov­ern­ment depart­ment. And the Cen­tre will now need to demon­strate that a post-Pa­tel cen­tral bank will con­tinue to en­joy op­er­a­tional au­ton­omy. Any­thing less will not go down well with both in­vestors and the mar­kets.

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