Shock and awe as patel goes

The fractious RBI versus government drama approached its season finale with the central bank’s governor Urjit Patel stepping down with immediate effect on Monday, citing ‘personal’ reasons.

The resignation is a blow to the government’s credibility, and could lead to the ‘wrath of the markets’ on Tuesday while also giving ample ammunition to the opposition to corner it over the blot on India’s monetary and banking system.

For now, sources say that deputy governor N S Viswanathan, the senior most among the RBI brass, will chair the upcoming board meeting on December 14. However, sources rule out the chances of Viswanathan or someone within the RBI including the outspoken Viral Acharya taking over the reins. Acharya, whose history-altering speech brought the differences into the public spotlight, hasn’t resigned contrary to reports. He’ll be completing two years in RBI next month.

But it’s unclear which way the government will tilt its appointments this time — Western-educated economists or home-bred bureaucrats — as the Americanised model vs Hindu-growth narrative goes mainstream. Some of the names doing the rounds include former bureaucrat Shaktikanta Das, but given the recent high-profile exits of Western-educated economists, it remains to be seen if they would be interested in taking up the top post.

“Clarity on Governor’s appointment is expected tomorrow,” sources added.

Just a few weeks ago, It appeared both institutions called a truce, having mutually agreed to four out of the 12 contentious issues, but Patel’s resignation proves all such efforts were scraps thrown to show good faith amid falling credibility.  One of the triggers for Patel’s exit includes the proposed external committee on Economic Capital Framework. Sources said the government appointed former RBI Governor Bimal Jalan as the chairman and Rakesh Mohan, former deputy governor, RBI as the vice chairman. The appointments will be made public in a few days.

Soon after the resignation, PM Narendra Modi and Finance Minister Arun Jaitley took to Twitter wishing Patel well, hinting that efforts to persuade Patel to stay were off the table.Though in the past several sections backed Patel in his fight to retain RBI’s autonomy and independence, not all agreed with the manner in which he quit.

Patel is the second RBI governor to resign from the position since the times of Benegal Rama Rau in 1957, who quit just before the expiry of his second extended term due to differences with the then finance minister T T Krishnamachari under the Jawaharlal Nehru government.

Final face-off on Jalan pick

Among the reasons that could have prompted Patel to step down include the government’s selection of the proposed Economic Capital Framework. Sources say the government has appointed former RBI Governor Bimal Jalan as the chairman of ECF and Rakesh Mohan, former deputy governor as its vice chairman. The appointments will be made public in a few days. While government rooted for Jalan, RBI wanted Mohan to chair the committee

Flashpoints

The government and RBI were not on the same page on a number of issues. Here’s a look:
Govt wanted the Prompt Corrective Action framework be relaxed; RBI disagreed
Govt wanted RBI’s surplus funds of about `3 lakh crore; central bank refused to budge
Govt wanted higher credit flow to money-strapped MSMEs; RBI did not want to tweak norms for this
RBI governor was not comfortable with government’s move to enhance board’s role in decision making and the threat of using Section 7

RBI governor’s statement

On account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honour to serve in the Reserve Bank of India in various capacities over the years. The support and hard work of RBI staff, officers and management has been the proximate driver of the Bank’s considerable accomplishments in recent years. I take this opportunity to express gratitude to my colleagues and Directors of the RBI Central Board, and wish them all the best for the future

Urjit R Patel, 10th December 2018