RBI-government issues are not over
Reserve Bank of India (RBI) Governor Urjit Patel has resigned citing personal reasons, although the real reason for his exit is no secret. There were initially reports that deputy governor Viral Acharya had also resigned, but RBI has denied this. The resignation comes four days ahead of a key RBI board meeting during which the government and the central bank were expected to discuss their differences. A meeting on November 19 discussed those issues too and seemed to end on a conciliatory note, although this newspaper pointed out that the issues were far from resolved. They clearly weren’t.
The main differences concerned the quantum of surplus RBI needs to hold (it does far in excess of other central banks); its timeline and benchmark for banks to meet new capitalisation norms; credit to non-banking finance companies; and a framework for corrective action that placed lending curbs on half the state-owned banks in the country. The immediate impact of the resignation will be some churn in the money and stock markets that were already nervous on Monday in anticipation of state election results on December 11 (which are expected to be unfavourable to the BJP). Coming close on the heels of the turmoil at the Central Bureau of Investigation (CBI), the latest developments at RBI are certain to reinforce perceptions that the National Democratic Alliance government has made a hash of managing key independent and autonomous institutions. In the case of CBI, while there may have been legitimate reasons for the divestment of the powers of the investigative agency’s chief and his deputy, the government chose not to act till matters reached a head and then, did so in a way that appeared to violate a law on the term of the CBI chief. Not surprisingly, the matter is before the Supreme Court.
In the case of RBI, the issue is more complex: the central bank may have been too rigid in some of its positions and some of its officials may have been intemperate in their public comments, but the central bank’s motives were wholly above board (and there are many who believe that it was doing the right thing by the economy and the Indian banking system). The government could have surely handled this better. The Modi government can and should do better in managing its relationships with institutions such as RBI, if only to prevent the sense that there is a larger unravelling underway.