Low-key Patel was forced into high-stakes battle

RBI Governor Urjit Patel, who quit on Monday, had a difficult stay at the top of the central bank that started with a contentious note ban and ended amid a bitter dispute over a government turf grab.

The reticent central banker, who put out his resignation on the RBI website, chose not to cite a reason other than personal for the abrupt decision. The government also conveniently skipped taking note of the suddenness of the move, which evoked a barrage of attack from the Opposition.

Prime Minister Narendra Modi said Patel's absence would be felt and lauded the RBI Governor for bringing stability to the banking system, while Finance Minister Arun Jaitley appreciated the services rendered by Patel.

The Opposition was, however, harsh in its criticism of the decision. The main Opposition Congress party said, “another one bites the dust. This is the result of our 'chowkidar's' assault on democratic institutions - RBI Governor, Urjit Patel steps down”.

West Bengal Chief Minister Mamta Banerjee called it a financial emergency.

The sudden resignation of a central bank governor has wide ramifications and can adversely impact investor confidence in the Indian economy.

According to Patel's predecessor at the RBI, Raghuram Rajan, the resignation was a statement of dissent and the government needed to deal with that carefully.

Amid various points of tension between the government and the RBI, the 2016 decision on demonetisation was one of which often put Patel, a quiet man who shunned the limelight, in a tight spot before various parliamentary committees.

Disagreement on demonetisation was one of the reasons Raghuram Rajan was denied a second term. Patel had to face severe criticism from the opposition on many counts starting from RBI's lack of preparedness before the government announcing such a mammoth decision to an apparent delay in the counting of returned demonetised currency notes into the system.

But soon after demonetisation, other issues cropped up after which the government and RBI could not see eye-to-eye.

The finance ministry to make RBI a Board-driven institution and appointment of government officials on its board was seen by RBI as a step to stem its autonomy.

Then came the use of Section 7 of the RBI Act, a never-before-used rule which allowed the government to issue directions to the governor of the central bank in matters adhering to the public interest.

Though the government did not own up publicly that it ever invoked Section 7, top officials said the section was used against the RBI.

The government also made it amply clear to the central bank that it wanted to dip into its reserves and was about to push ahead aggressively in the forthcoming RBI board meeting on coming Friday.

RBI insiders said all that happened without any discussion between the government and the governor. They said there was an utter lack of coordination.

In the midst of all that, RBI deputy governor Viral Acharya went public demanding central banks' autonomy from the governments which also evoked an equal reaction from finance ministry officials aggravating the tension which ultimately resulted into Patel's hanging his boot before time.

Former finance minister P Chidambaram, in whose regime the Kenya-born economist of international repute was brought to India and to the RBI, said, “Saddened, not surprised, by Dr Urjit Patel's resignation. No self-respecting scholar or academic can work in this government”.

Patel's disagreement with the government was not the first any RBI governor would have had with the government. There have been several instances when ideologies of RBI and central government didn’t converge. D Subbarao and Y V Reddy were the RBI governors in recent times who had uneasy relationships with the Centre but it rarely came into the open.

 

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Low-key Patel was forced into high-stakes battle

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