Untimely Resignation Of The RBI Governor
In an interesting turn of events, a statement from the RBI Governor came on Monday late afternoon stating – “Resignation with immediate effect”. For many it was surprising, as the general perception was after the storm in a board meeting on 23rd October, 2018, things have smoothened and bettered in the subsequent meeting held on November 2018 between the Administration and Central Bank
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“No Institution is bigger than a man but there needs to be independence between the Administration and the Central Bank.”
What had brought this day in the history of India and why it was so necessary for Mr. Urjit Patel to quit as a Governor? Mr. Patel is/was the first Governor post liberalization to quit before his term expires and the first to serve as a Governor for the shortest tenure after Independence. This article is an attempt to analyse some of the probable reasons as to why the Governor of Central Bank felt the need to quit and what compelled such a drastic decision.
10th December was not meant to be a happening day as all the action was expected to be on 11th December i.e. when election results of Rajasthan, Chhattisgarh, Madhya Pradesh, Telangana, and Mizoram was supposed to be declared.
In an interesting turn of events, a statement from the RBI Governor came on Monday late afternoon stating – “Resignation with immediate effect”. For many it was surprising, as the general perception was after the storm in a board meeting on 23rd October, 2018, things have smoothened and bettered in the subsequent meeting held on November 2018 between the Administration and Central Bank.
The Resignation was to say at least - unusual, not expected and unforeseen. It was made to believe at least in the media circles that after last month’s meeting things have smoothened.
So, what could go Wrong?
The Central Bank as an apex agency, is obligated to keep inflation under control whereas the Administration wants Faster Economic Development. Both these things require doing opposite actions. Historically this has been the primary reason for the clash between the Central Bank and the Administration.
Since, the appointment in September 2016, the Governor faced demonetization in November 2016 which was unplanned to say at least. The Administration nor the Central Bank was prepared for such a massive exercise like “Demonetization”. The Central Bank faced a shortage of time to print currency notes, general inconvenience from the public and economic loss in general.
Another major hiccup was NPA’s (Non-Performing Assets) and the sword of PCA or Prompt Corrective Action Norms. Though, the norms were in place from 2014 the wrath was only seen after May 2017 when 11 PSB (Public Sector Banks) came under RBI’s PCA norms.
Under PCA, banks are mandated to cut lending and to reduce the concentration of loan to certain sectors. PCA also restricted opening new branches and paying dividends and pushed the Administration towards recapitalization, which in turn was hurting the economic growth story.
It is no secret that the Central Bank maintains a money bag, within the financial circles there was a whispering that the Administration indirectly urged the Central Bank to release some funds to re-invigorate the economy, which was detested by the Central Bank and it was also widely speculated that the Administration might invoke powers u/s 7 of the RBI Act, 1934 which may have irked the Governor.
To resist change is a human tendency and it is the same with the institution. The Administration wanted to come up with a payment regulator as a watchdog over e-payment/wallet companies. And like any other institutions, the Central Bank was ready to give up its turf.
It was no hidden fact that the Central Bank was treading on a cautious path with regards to the Monetary Policy and the Administration was aggressive on growth. The norms employed by the Central Bank was hurting the Administration specially in the Infrastructural Sector. In democracy, the Administration is answerable to masses, unlike the Central Bank. Perhaps, it was best for the Governor to set aside rather than sitting over a deadlock.
With the appointment of Shri Shaktikanta Das; IAS (1980 Batch). The Government has brought a seasoned bureaucrat and former Economic Affairs and Revenue Secretary also a member of 15th Finance Commissions who brings heaps of experience on the table and will provide the necessary alignment, sagacity, and respect to the job.
 ‘Administration’ is referred to Executive / Government of India.
 ‘Central Bank’ is referred to The Reserve Bank of India.
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