The truth behind RBI Governor Urjit Patel's resignation. Why Mainstream media is hiding from you?
RBI Governor Urjit Patel's resigned and PM tweets Goodbye. Did Modi Govt. was the reason, What is the Chaos behind Urjit Patel's resignation.
HIGHLIGHTS
- His resignation comes against the backdrop of increasing tensions between the Finance ministry and the Reserve Bank of India.
- He was hand-picked by the BJP-led government after his predecessor Raghuram Rajan was denied a second-term.
- There has been speculation of his resignation after deputy governor Viral Acharya's speech last month that sought to defend the autonomy of the RBI.
Urjit Patel has resigned as the Reserve Bank of India governor. His resignation comes against the backdrop of increasing tensions between the Finance ministry and the Reserve Bank of India. Urjit Patel, 55, who took over as the 24th Governor of the central bank on September 5, 2016, had the shortest tenure since the year 1992.
He was hand-picked by the BJP-led government after his predecessor Raghuram Rajan was denied a second-term.
In recent months, the government and the RBI have been at loggerheads over whether the RBI has been too hawkish in its stance towards lenders and the economy given a drop in the inflation rate and signs of slower growth, as well as in the face of defaults by a major lender.
There has been speculation of his resignation after deputy governor Viral Acharya's speech last month that sought to defend the autonomy of the RBI and the subsequent differences between the government and the RBI over various issues related to liquidity, credit flow and the controls governing weak banks.
Terming the resignation of RBI governor Urjit Patel as a mark of protest, former RBI chief Raghuram Rajan, in an interview to ET Now has said that the government needs to understand what prompted the resignation of Urjit Patel.
"On account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honour to serve in the Reserve Bank of India in various capacities over the years. The support and hard work of RBI staff, officers and management has been the proximate driver of the Bank’s considerable accomplishments in recent years. I take this opportunity to express gratitude to my colleagues and Directors of the RBI Central Board, and wish them all the best for the future," Patel said in a statement.
The sudden resignation of Reserve Bank of India Governor Urjit Patel comes after the rumours of his resignation had died down and it seemed all was well between the government and the RBI. The November 19 board meeting of the RBI was expected to be a showdown between the government and the RBI who did not see eye to eye on a range of issues related to liquidity, credit flow and the controls governing weak banks. But the meeting passed without any storm and it was thought both the parties were finally working together.
Speaking at the customary post-policy presser after the fifth bi-monthly policy review on December 5, wherein the policy rates were left unchanged, Patel parried questions on his spat with the government. His decision to keep the repo rate unchanged was also seen as a conciliatory move.
Though Patel has cited personal reasons for quitting the RBI, given the recent controversies, it's not unreasonable to assume that Patel quit when the RBI autonomy faced pressures from the government.
The government had sought a special refinance window for mutual funds, NBFCs and housing finance companies; a facility for banks to raise $30 billion overseas; a relaxation in the limits on corporate bonds for foreign portfolio investors; and easier mandatory hedging requirements for infrastructure loans of less than 10 years. In the interest of long-term financial health of the country, the RBI does not want to ease controls to help government achieve short-term goals of economic growth.
The overactive board
The RBI board had played an overactive role in the spat between the RBI and the government, pushing the government's viewpoint. There was no clarity on whether the board could dictate terms to the RBI. The government was seen to be putting pressure on the RBI governor through its handpicked nominees. RSS ideologue and board member S Gurumurthy had written to the RBI governor complaining against deputy governor Acharya’s October 26 speech that warned about the dangers of undermining the autonomy of regulators. “The RBI Act itself says the management of RBI is entrusted to the board, with the governor and the deputies being mandated to exercise management powers subject to board’s directions,” Gurumurthy had said.
Urjit Patel's contribution:
Despite the laudable initiatives he took to fix the bad loans problem, the sudden exit of Reserve Bank of India (RBI) governor Urjit Patel is, on balance, a positive development. It may have been badly timed and will cause the Modi government a lot of embarrassment, but Patel was simply not the man for the job.
Any RBI governor needs two skills. One is the ability to communicate, including with the finance ministry, so that the relationship is smooth despite disagreements. The other is the ability to take policy decisions keeping the complexities of the real Indian economy in mind. Patel failed to measure up on both counts.
This was evident in the early days of his governorship, when demonetization overshadowed his entry to the top job on Mint Street. He remained tongue-tied and under-communicative when the public and the markets needed reassurance. The government’s critics saw Patel as a Modi flunkey, a willing accomplice to the devaluation of the RBI’s credibility. However, with 20/20 hindsight, it is clear that Patel was, and is, a bad communicator, so bad that he let his relationship with the government deteriorate to the point of distrust.
In any event, independence is not something that is conferred on a regulator; it is negotiated and earned. Governor Patel did not earn it and, if he had any hand in getting deputy governor Viral Acharya to publicly attack the government a few weeks ago, he was setting himself up for failure. When you challenge the government so openly, accusing it publicly of attempting to raid the RBI’s capital, it invites a pushback. Now that Patel himself is gone, one can presume that the remaining tenure of Acharya may also be in some doubt.
It is worth recalling that two of the most contentious issues between the government and the RBI predates the current spat. The previous chief economic advisor, Arvind Subramanian, told the RBI last year that its inflation forecasts were consistently overestimated. He also claimed the RBI had excess capital of around ₹4-4.5 trillion, some of which could be used to recapitalize public sector banks, with conditions attached.
Madhuchanda Dey Moneycontrol Research
If the outcome of the state election and sudden resignation of RBI governor Urjit Patel was a stunner, what was even more surprising was the market’s reaction to the unfolding events.
Impending rate cut?
The irrational exuberance got a boost from the recently released retail inflation number that showed CPI inflation easing to 2.33 percent in November. While the base effect was favourable for a lower print, a sharp contraction of 2.6 percent in food inflation triggered the decline.
He was hand-picked by the BJP-led government after his predecessor Raghuram Rajan was denied a second-term.
In recent months, the government and the RBI have been at loggerheads over whether the RBI has been too hawkish in its stance towards lenders and the economy given a drop in the inflation rate and signs of slower growth, as well as in the face of defaults by a major lender.
There has been speculation of his resignation after deputy governor Viral Acharya's speech last month that sought to defend the autonomy of the RBI and the subsequent differences between the government and the RBI over various issues related to liquidity, credit flow and the controls governing weak banks.
Terming the resignation of RBI governor Urjit Patel as a mark of protest, former RBI chief Raghuram Rajan, in an interview to ET Now has said that the government needs to understand what prompted the resignation of Urjit Patel.
This is the statement offered by Urjit Patel:
"On account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honour to serve in the Reserve Bank of India in various capacities over the years. The support and hard work of RBI staff, officers and management has been the proximate driver of the Bank’s considerable accomplishments in recent years. I take this opportunity to express gratitude to my colleagues and Directors of the RBI Central Board, and wish them all the best for the future," Patel said in a statement.
The sudden resignation of Reserve Bank of India Governor Urjit Patel comes after the rumours of his resignation had died down and it seemed all was well between the government and the RBI. The November 19 board meeting of the RBI was expected to be a showdown between the government and the RBI who did not see eye to eye on a range of issues related to liquidity, credit flow and the controls governing weak banks. But the meeting passed without any storm and it was thought both the parties were finally working together.
Speaking at the customary post-policy presser after the fifth bi-monthly policy review on December 5, wherein the policy rates were left unchanged, Patel parried questions on his spat with the government. His decision to keep the repo rate unchanged was also seen as a conciliatory move.
Though Patel has cited personal reasons for quitting the RBI, given the recent controversies, it's not unreasonable to assume that Patel quit when the RBI autonomy faced pressures from the government.
The government had sought a special refinance window for mutual funds, NBFCs and housing finance companies; a facility for banks to raise $30 billion overseas; a relaxation in the limits on corporate bonds for foreign portfolio investors; and easier mandatory hedging requirements for infrastructure loans of less than 10 years. In the interest of long-term financial health of the country, the RBI does not want to ease controls to help government achieve short-term goals of economic growth.
The overactive board
The RBI board had played an overactive role in the spat between the RBI and the government, pushing the government's viewpoint. There was no clarity on whether the board could dictate terms to the RBI. The government was seen to be putting pressure on the RBI governor through its handpicked nominees. RSS ideologue and board member S Gurumurthy had written to the RBI governor complaining against deputy governor Acharya’s October 26 speech that warned about the dangers of undermining the autonomy of regulators. “The RBI Act itself says the management of RBI is entrusted to the board, with the governor and the deputies being mandated to exercise management powers subject to board’s directions,” Gurumurthy had said.
Urjit Patel's contribution:
Despite the laudable initiatives he took to fix the bad loans problem, the sudden exit of Reserve Bank of India (RBI) governor Urjit Patel is, on balance, a positive development. It may have been badly timed and will cause the Modi government a lot of embarrassment, but Patel was simply not the man for the job.
Any RBI governor needs two skills. One is the ability to communicate, including with the finance ministry, so that the relationship is smooth despite disagreements. The other is the ability to take policy decisions keeping the complexities of the real Indian economy in mind. Patel failed to measure up on both counts.
This was evident in the early days of his governorship, when demonetization overshadowed his entry to the top job on Mint Street. He remained tongue-tied and under-communicative when the public and the markets needed reassurance. The government’s critics saw Patel as a Modi flunkey, a willing accomplice to the devaluation of the RBI’s credibility. However, with 20/20 hindsight, it is clear that Patel was, and is, a bad communicator, so bad that he let his relationship with the government deteriorate to the point of distrust.
In any event, independence is not something that is conferred on a regulator; it is negotiated and earned. Governor Patel did not earn it and, if he had any hand in getting deputy governor Viral Acharya to publicly attack the government a few weeks ago, he was setting himself up for failure. When you challenge the government so openly, accusing it publicly of attempting to raid the RBI’s capital, it invites a pushback. Now that Patel himself is gone, one can presume that the remaining tenure of Acharya may also be in some doubt.
It is worth recalling that two of the most contentious issues between the government and the RBI predates the current spat. The previous chief economic advisor, Arvind Subramanian, told the RBI last year that its inflation forecasts were consistently overestimated. He also claimed the RBI had excess capital of around ₹4-4.5 trillion, some of which could be used to recapitalize public sector banks, with conditions attached.
Madhuchanda Dey Moneycontrol Research
If the outcome of the state election and sudden resignation of RBI governor Urjit Patel was a stunner, what was even more surprising was the market’s reaction to the unfolding events.
Impending rate cut?
The irrational exuberance got a boost from the recently released retail inflation number that showed CPI inflation easing to 2.33 percent in November. While the base effect was favourable for a lower print, a sharp contraction of 2.6 percent in food inflation triggered the decline.
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