Reserve Bank of India governor Urjit Patel has resigned. This was always on the cards, though the governor chose not to announce it, understandably, at the last monetary policy meeting on December 5. Being a loyal servant of the nation, he may also have waited for the last leg of the state elections to get out of the way, lest the timing of his exit be regarded with political suspicion. Thus, it was on a calm Monday evening that he chose to share this deeply disturbing news with the world. He cited “personal reasons”, for what else could he say? Hardly that relations with the Central government had plumbed such depths that it simply wasn’t possible to carry on anymore.
Yet, it wouldn’t have been an impulsive or rash decision, as RBI governors never act in haste. Heads of other institutions can leave in a huff – a Board of Control for Cricket in India chief or even the head of the Film and Television Institute of India. But how often do you see an RBI governor leaving mid-term? It almost never happens, because the ramifications are so enormous and dire. And today, it has. We should be worried, very worried. And not only because the Sensex will tank on Tuesday.
The world was disappointed when Raghuram Rajan left at the end of his tenure. Had demonetisation happened on his watch, my bet is that he would have resigned then, but thankfully he was spared that. The acrimony with the government had begun back then; Rajan merely dodged it with grace till it was his time to go. Minutes after Patel’s resignation, speaking to a news channel, Rajan said that “it was an act of protest, the only way an RBI governor could show it” and that “it serves no purpose to have yes-men at the helm of important institutions like the RBI”.
Scathing words, coming from a former governor. But far more scathing words are deserved by the government at the Centre. It won’t only be words though, worse may follow. The world may express its displeasure not with words alone but also by pulling out capital from this country. Faith, once shaken, is difficult to restore. The RBI is an institution that global investors trust far more than the government of India, and if there is a feeling, as is bound to be, that this institution is under siege by politicians, their faith in the very foundation of India’s economic solidity may be shaken, with dire consequences. It remains to be seen if more of Patel’s colleagues follow in his footsteps.
Disagreements between Central governments and the RBI are nothing new. Over the years, many finance ministers have differed with the RBI on matters of monetary policy. After all, the priorities of sitting finance ministers and the RBI are not always aligned. Governments have to show an account of economic growth during their tenures to win votes and be re-elected but the RBI has to balance those objectives with an eye on inflation and the macro economic stability of the country. So, terse comments are issued from North Block, sometimes in public, but the RBI keeps its head down and carries on. Eventually, governments back off, as they know the price of pushing beyond a point. Better sense always prevailed, until now.
To this government, winning is all that matters. No price is too high. As the economy slows dangerously before an upcoming election, the government is desperate to find resources somehow to prime growth again. The RBI stands in its way and the government won’t have it. Demonetisation had already shown us what little respect Prime Minister Narenda Modi has for the office of the RBI governor. And now, he couldn’t swallow the temerity of the man, denying his claim. Thus, the sparks continued to fly till one side had to bow out. Inevitably, it was the governor.
In a way, it is good that this has happened. Something really terrible had to happen for the world to realise the plight that other Indian institutions, from courts to universities, are faced with today. With the others, the world could make sympathetic noises and carry on, but the RBI is just too big to ignore. Global capital should vote with its feet and make its displeasure known. The government couldn’t care less about Urjit Patel, but if markets tumble and the rupee goes for a toss, it will have to take note. In its desperation, this government is also alienating one support base after another. Farmers, minorities and backward castes are up in arms anyway, now even the urban middle class, businessmen and investors may desert the teetering ship. There is a sense of things spinning out of control. What a long way we have come from those heady days of the Vikash Purush thumping his chest with promises of Achhe Din.
Urjit Patel has done the honourable thing. Now, the government will have to quickly find a ‘yes man’ for the job. This calls for a massive push back, as we cannot afford the destruction of our most important institutions. “Make in India” never took off, but ‘Break in India’ just touched a new level.
Udayan Mukherjee is Consulting Editor, CNBC TV18. His novel Dark Circles is now available in stores.