“On account of personal reasons, I have decided to step down from my current position effective immediately”, said RBI Governor Urjit Patel in his resignation letter on Monday, amid frosty relations between the government and the central bank authority. Here’s the story to why Patel resigned.
Urjit Patel was hand-picked by the NDA government as Reserve Bank of India (RBI) Governor in September 2016, succeeding Raghuram Rajan and it was believed that this would improvise government-central bank relations. But within months of Patel’s appointment, the demonetisation happened and turned out to be a blow for RBI which faced immense criticism for not being able to provide enough currency circulation. In a major blow for the government, RBI’s annual report for 2016-17 showed that all the cash had come back to the system – indicating the failure of government’s decision of conducting demonetisation to curb black money. However, the government still maintained the exercise as a success.
Adding to the right, RBI’s withdrawal the bank loan restructuring mechanism to clean up the banking system, NBFC crisis, disclosure norms for defaults and many other factors that were “against the government’s expectation” led to widen the distance. However, the disagreement between governments and central banks is nothing unusual and is not limited just to India – there is ever-present rift even the US Federal Reserve and the White House; it is rather a very global issue. But about Urjit Patel’s unprecedented resignation, it got worse when the government tried to influence the RBI functioning.
It started with demission of Nachiket Mor from RBI Board and appointment of other board members by the government as an effort to control RBI functioning through board. This got obvious with when the government referred to Sec. 7 of the RBI Act for consultation on several issues. The final nail in the coffin was pinned with Centre demanding to review RBI’s governance to allow the board to have more decision making powers. Apparently, there has been an “extreme” change in the nature of RBI functioning as the board was given powers to become an operational board, giving out operational decision.
With all the baggage, Urjit Patel, who took the office as 24th RBI Governor became the second central bank chief to have resigned after Benegal Rama Rau, who had resigned during 50s. The next RBI board meeting is scheduled for December 14th, but Dr. Patel has chosen to call it a day for his tenure. The resignation is seen as a mark of protest, the government needs to look into what prompted Patel’s immediate resignation. After all, the hollows in bank governance indicates the looming threats on overall growth and development of entire country – which, undoubtedly is a concern of every single Indian.