Photo: Abhijit Bhatlekar/Mint
Photo: Abhijit Bhatlekar/Mint

Opinion | Watching a tragedy unfold

One of the government's genuine reforms, the Monetary Policy Framework, a key plank of the RBI's functional autonomy, is being frittered away before our very eyes

Writing in this space as long ago as 8 October (Ill Winds Blow On Mint Road), I had warned of my sense that there would be an imminent attempt by the Narendra Modi-led government to take over the Reserve Bank of India (RBI) in the sense of whittling away its functional autonomy. Matters came to a head with deputy governor Viral Acharya’s by now already famous A.D. Shroff Memorial Lecture on 26 October, the topic being central bank independence.

Writing again on 5 November (Eroding The Functional Autonomy Of RBI), I had argued that the forcible attempt by government appointments on the RBI central board to hijack the agenda, and wrest functional control from the RBI management, or by invoking the nuclear option of Section 7 of the RBI Act, all of which intended to get the RBI to loosen monetary policy, ease its pressure on public sector banks to solve their bad debt problem, or fork over a considerable portion of its “excess" reserves, would be a red line for any central bank governor.

Following an acrimonious nine-hour meeting of the central board on 19 November, it appeared superficially that the RBI and the board—in particular, those members speaking for the government—had papered over the cracks. But I remarked then to whoever would listen that this was a crisis postponed, not a crisis averted.

Alas, so it proved, with the resignation of governor Urjit Patel on 10 December and the unseemly haste with which he was replaced the next day by senior bureaucrat Shaktikanta Das, in advance of a board meeting that had been scheduled to go ahead as planned on 14 December. Meanwhile, a day earlier, Das met with public sector bank chiefs and presumably made soothing and placatory noises. That the relationship between Mint Road and the big banks would be business as usual was presumably the message. While the board meeting on 14 December was underway as this article was filed, we can safely presume it ended without acrimony, with an unwritten understanding that government priorities would be given their due going forward.

Ironically, the same day, 14 December, also marked the 16th L.K. Jha memorial lecture, delivered by noted economist Hélène Rey, an expert in international macroeconomics and finance, speaking on “National monetary authorities and the global financial cycle". I could not help but be reminded that, during his regrettably short tenure, Patel, with a strongly academic streak of his own, had added a noticeably academic character to all of the RBI’s series of endowed lectures, and the talk by Rey was no exception. The new governor, Das, was due to preside, and I was tempted to wonder whether he had even heard of Rey before the event.

I will not dwell at length here on the larger consequences of the ouster of Patel, which I have commented about extensively in media interviews and written about recently in the Nikkei Asian Review (s.nikkei.com/2SELIV6). In a nutshell, Patel’s exit signals the departure of the last US-educated economist playing an important role within the system, and his replacement by a putatively pliable bureaucrat who had been a loyal lieutenant of the Modi government.

There is evidently a pattern here. Columbia University economics professor Arvind Panagariya, a distinguished international trade economist in his own right, who was founding vice-chairman of NITI Aayog, was replaced by Rajiv Kumar, who has served with distinction in various senior roles in important organisations in India, but cannot be said to command any particular academic distinction of his own.

Likewise, the departure of economist Arvind Subramanian as chief economic adviser, marked his return to twin appointments at the Peterson Institute for International Economics, a Washington, D.C. think tank, and the Harvard Kennedy School as a visiting lecturer in public policy. His replacement, Krishnamurthy Subramanian, has considerable institutional experience in India, but an academic curriculum vitae that may best be described as slender for the very senior position that he now fills compared to his recent predecessors.

However, it is not just that US-educated economists, sneeringly described as being on “sabbatical" by nativists in the ecosystem of the ruling dispensation, are now evidently no longer welcome within the system. It is rather that their replacements have presumably had to receive a stamp of approval from those very same nativist elements, those who determine if someone is “mentally Indian" or not, whether they are just on sabbatical from the West, or have genuinely established roots in India, and so forth. This is the wrong way to attract and keep good talent. Look at the success of Israel, which embraces its diaspora in ways that can only make non-resident Indians feel angry at the lack of comparable interest in India for the service that they could offer to the nation.

All of this marks a sea-change from the ambience in 2014, when many serious and credible economists were betting that Modi could be the transformational figure that he had promised to be in his campaign. Alas, well over four years later, those hopes have been dashed. The bitterest disappointment for me personally is that one of the government’s genuine reforms, the Monetary Policy Framework, a key plank of the RBI’s functional autonomy, is being frittered away before our very eyes. That is nothing short of a tragedy.

Vivek Dehejia is resident senior fellow at the IDFC Institute, Mumbai. Read Vivek’s Mint columns at livemint.com/vivekdehejia.

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