Missing in action: The RBI governor
new delhi/mumbai — As India undergoes the world’s biggest currency overhaul in decades, one official is noticeably absent: central bank Governor Urjit Patel.
The head of the monetary authority has spoken just once since the government invalidated 86 per cent of currency in circulation in a surprise move on November 8. Mounting cash shortages pushed the Supreme Court to warn of riots, and a powerful bank union called for Patel’s resignation after a senior bureaucrat was tasked with firefighting.
“Generally, measures of this sort are carefully planned well in advance, and the public is given plenty of time in advance to adjust,” Robert Hockett, who teaches monetary law at Cornell University and advises the New York Federal Reserve, said by e-mail. “It is generally to be expected, and is typically the case, that the actual issuer of the currency, the central bank, plays the leading, if not the sole, role in these matters.”
While Patel’s low profile was initially seen as a foil for Prime Minister Narendra Modi’s high-visibility administration, it risks backfiring as public anger increases. Credibility and autonomy of the Reserve Bank of India is linked to the value investors assign the rupee, which on Thursday sank to a record low. Earlier this month, Modi banned ₹500 and ₹1,000 ($15) bank notes in a move he said was essential to root out tax evasion and graft. Patel briefed the press soon after, assuring that enough supplies of fresh bank bills would be shared across the country and life would be back to normal by the end of 2016. Business leaders such as Ratan Tata, interim chairman of India’s largest conglomerate, called on peers to support the “bold” move. However, on the streets, authorities were criticised for poor execution. In a nation where 98 per cent of all consumer payments are made in cash, half of the 200,000 cash machines have yet to be refitted to handle the new bank notes.
Other experts have been questioning the wisdom in backing Modi’s decision to ban the notes. K.C. Chakrabarty, who’s held both commercial banking and public policy roles, said he doesn’t know how much the Reserve Bank of India was “on board” with Modi’s move. It was Patel’s 10-member board that came up with the idea to ban the notes, Power Minister Piyush Goyal told lawmakers on November 16.
The RBI’s spokeswoman didn’t reply to an e-mail seeking comment on the central bank’s involvement in the currency overhaul and Patel’s absence. The RBI has been issuing periodic statements assuring on the supply of cash.
“I was in charge of currency management and I saw that it doesn’t serve the purpose,” Chakrabarty, who was deputy governor at the RBI from 2009 to 2014, said by phone from London. “All I can say is the present governor is a very sensible person and he is very new. So I’ll give him the benefit of doubt.”
I was in charge of currency management and I saw that [banning notes] doesn’t serve the purpose K.C. Chakrabarty, RBI deputy governor, 2009-14