The Reserve Bank Urjit Patel has become the second governor to resign from the top post of the central bank. Prior to Patel, R N Malhotra had resigned in 1990 following the differences with the then Finance Minister Yashwant Sinha.
Malhotra resigned after receiving a hint from Sinha, who had become finance minister in Chandra Shekhar's short-lived government of 1991. Earlier, he had had a tough time with the finance ministry from 1988 onwards, which was ignoring his warnings over the increasing fiscal deficit.
Ironically, the one who ignored him most was his former subordinate, Bimal Jalan. As finance secretary in 1990, Jalan would not even reply to Malhotra's communications on the fiscal deficit.
However, the fissures between the government and RBI aren’t new. The fissures date to the inception of the central bank in 1934. In 1936, the first governor of RBI Osborne Smith wrote that he was "sick to death" of the government's attempt to dominate the RBI. He also called the Viceroy a "weak ass".
The other famous fueds include Benegal Rama Rau versus TT Krishnamachari, YV Reddy versus P Chidambaram, DV Subbarao versus P Chidambaram, Raghuram Rajan versus Arun Jaitley.
Interestingly two former Prime Minister Manmohan Singh, during his tenure as RBI governor, had his share of difference with then Finance Minister Pranab Mukherjee. Former Prime Minister Manmohan Singh’s daughter Daman Singh, in her book Strictly Personal: Manmohan and Gursharan quote him as saying he had serious disagreements with Pranab Mukherjee when he was the RBI governor when he was the RBI Governor.
Timeline of events:
October 26: RBI Deputy Governor Viral Acharya delivers a public lecture at A. D. Shroff Memorial Lecture, criticising the government for interfering with the autonomy of the central bank. Says Inspired by Urjit Patel
October 30: Finance Minister Arun Jaitley criticises the Reserve Bank for reckless lending. Patel calls board meeting on November 19.
November 3: Another RBI deputy governor NS Vishwanathan replies to barbs by Arun Jaitley. Says ““It is not that banks have a huge coffer like that of Uncle Scrooge from which they make loans, but it is funds they raise through deposits that are used for making loans.”
November 13: Patel meets Prime Minister Narendra Modi over the issue.
November 19: RBI and government seem to make truce, as RBI decides to set-up expert committees to address MSME issues.
December 5: Patel declines to comment on issue at post MPC presser of RBI. However, deputy governor Mahesh Jain says that expert committee’s (on MSME lending) suggestions would be available only after June 2019, effectively after election.
December 10: Patel resigns, citing personal reasons.
