Mumbai: Outgoing Reserve Bank of India (RBI) governor Urjit Patel has certainly put the government in a spot. While his resignation has not completely surprised the market that was closely watching the ongoing row between the central bank and the finance ministry, the timing has left people trying to connect the dots.
The resignation comes just a day before results of assembly elections in five states—Rajasthan, Chhattisgarh, Madhya Pradesh, Mizoram and Telangana—where the Bharatiya Janata Party (BJP), according to exit polls, is expected to face a stiff contest from opponents. That apart, Patel’s resignation is expected to give more firepower to the opposition in the winter session of Parliament that begins on Tuesday. The opposition has been a strong critic of the government’s alleged interference in the functioning of the central bank.
Urjit Patel’s resignation seems to be the culmination of the government’s conflict with RBI, voiced through its nominees on the central bank’s board, some of whom have strong political and ideological leanings. Moreover, this move by the governor is in contrast to his reticent demeanour that had come under criticism following his lack of views on the overnight demonetisation of ₹ 500 and ₹ 1,000 notes in November 2016. A lot has changed since then: Patel seems to have found his voice and has not shied away from a public confrontation.
The first signs of a disagreement emerged when state governments were offering loan waivers last year. In April 2017, Patel said, “waivers undermine an honest credit culture". Then in March this year, Patel said the RBI has limited legal authority to hold government-owned bank boards accountable on strategic direction, risk profiles, assessment of management and compensation.
The next flashpoint was when the RBI issued its contentious 12 February circular on loan defaulters. The government argued that the move was harsh, especially on stressed power producers.
This, coupled with the RBI denying the existence of a liquidity crunch in the non-banking financial companies sector, irked the government further.
By standing his ground, which now includes giving up his job instead of bowing down, in the face of pressure from the industry and the government, Patel has proved his mettle.
He took charge as the 24th governor on 4 September 2016 after serving as deputy governor since January 2013.
As deputy governor, Patel chaired the expert committee to revise and strengthen the monetary policy framework.
Representing India, he steered the signing into force of the inter-governmental treaty and the Inter-Central Bank Agreement among the BRICS nations. He has also served at the International Monetary Fund and was a consultant to the finance ministry (department of economic affairs) between 1998 and 2001.