Sunday, 26 June, 2022
HomeOpinionUrjit Patel is rigid & uncommunicative but India can’t afford his resignation

Urjit Patel is rigid & uncommunicative but India can’t afford his resignation

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Past RBI governors too have been rigid, but willing to engage.

The general drift of published commentary since the spat between the government and the Reserve Bank of India (RBI) became public has been as follows: A showdown should be avoided, and both sides should pull back; the government has a point on the need for more liquidity in the system; drawing on RBI reserves to keep the fiscal situation under control is not a good idea; finally, after having packed the RBI’s central board with political fellow-travellers, to now ask such a board to take decisions so far left to the management is best avoided. The board can provide oversight and guidance, but on technical matters the decision must be that of the professional management. In broad terms, the commentariat has come down on the side of the RBI while asking it to be more flexible and more open to discussion and persuasion.

There is another view: The RBI has excess reserves, which it should hand over to the government, to which the reserves belong. The central bank’s management has not been subjected to proper accountability, despite obvious failures, and therefore the RBI’s central board needs to play a more active role. And, it has its finger in too many pies and should focus on its core functions, leaving the rest to other market regulators or the government. Precedents from other countries have been cited for and against these positions.

A picture of TN Ninan, chairman of Business Standard Private LimitedThe calls for the two sides to pull back and relax is the most sensible advice that can be given, but may not be easy for a couple of reasons. First, the pressures in the economy are real. Second, the broader debate on the proper role and functions of the RBI has been going on for some years and has to be resolved because it surfaces every now and then, as now with the payments system. There is a third factor that in all honesty has to be recognised, namely the personality of the present governor, who is seen as not just rigid but also uncommunicative. Past governors too have been rigid, but willing to engage. And yet, especially after the manner in which the last governor left (admittedly, at the end of his term), the government is reluctant to pull the trigger prematurely on this one.

Hence the government’s push to get issues discussed threadbare in the next board meeting. At the same time, if one were to judge by the tone and tenor of recent speeches by two deputy governors, there is a hardening of positions in the RBI’s top echelons. If the board forces the management’s hand on all the key issues, it should be prepared for resignations by the governor and the key deputy governor, Viral Acharya. That can only have negative consequences all around.

Bear in mind that the government is yet to fund a suitable candidate for the post of chief economic advisor. To look for a new governor and one more top-flight economist to serve as deputy governor, in an atmosphere of conflict, will probably mean planting an officer from the Indian Administrative Service as governor, on the assumption that he will do the government’s bidding. Given the criticism from influential quarters about filling senior economist positions with candidates from abroad, the search for suitable candidates will be an ask, though internal promotion could offer a solution.

Also read: Urjit Patel won the first round in RBI vs Centre, but the war isn’t over

The best answer in such situations is some tactical give-and-take. The board should advise in favour of more liquidity in the system, while appointing a committee to go into the technical issue of whether the RBI has surplus reserves that can be handed over. The government should use its own resources to give money to the under-capitalised banks that it owns. And Governor Urjit Patel on his part would be well advised to recall how Manmohan Singh as governor in the early 1980s was opposed to giving a branch licence to a dodgy foreign bank. When the government insisted and threatened to take bank licensing away from the RBI, Dr Singh (who had submitted his resignation on the issue) chose to back off rather than allow institutional damage to be done. Dr Patel faces a similar situation today.

By special arrangement with Business Standard

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  1. I have known Mr.Ninan when I was Revenue Secretary.
    His views are balanced.The GOI has clarified thta they do not want RBI reserves.We mustvremember the fuel injection done by the Federal Reserve and the ECB a total of 22 trillion dollars.They did it on their own.I have been in the IMF nad closely monitored the SEA crisis.
    Here while I as an economist administrator agree with the RBI stand on the PCA i do not on the issue of liquidity for the NBFCs.
    What wa sthe RBI doing all the while when there was a mismatch on deployment of sfort term borrowings on longterm assets.
    Why did mot the RBI warn the NBFCs and also the Banks when they were evergreenig the loans.
    RBI cannot hide into a shell.They are not infallible they are just theoretical economists and all of them failed in predicting 2008 crisis
    RBI needs to be practical and look at the consequence sof acollapse of some NBFCs.

  2. I have no idea who the members of the Board are, barring a recent appointee, who circulated a tasteless joke, making fun of the rape of a nun. An even foggier notion of what functions the Board performs. The idea that a simple majority of what are essentially political appointees could overpower the Governor of the RBI, armtwist him is abhorrent. Some view the appointment of a Monetary Policy Committee to set interest rates as a great reform. I don’t because the buck on something so important stops with the Governor, who listens to but sometimes does not accept the government’s advice. More importantly, because the record of political appointments, across parties, is not great. Only a matter of time before the MPC too starts getting packed with favourites who will do what is expected of them. 2. Style is personal. I was a great admirer of Dr Rajan, he had a flair for communication, but that is optional for this job. Dr Urjit Patel is his own man, which takes him far up in my esteem. One reason for his appearing taciturn could be that he was baptised by the disaster of demonetisation. Not his decision, not his fault, but he has been pushed into a corner where he could neither support nor criticise but had to be at the receiving end. 3. Vacuum cleaning the RBI’s aquifers, built up over generations to deal with the pressures of an election year when the economy is in a shambles, would get any Governor’s back up. The world does not believe our GDP figures. It would be a great pity if they stop respecting our central bank on this one. Losing Dr Urjit Patel and Dr Viral Acharya in one fell sweep would be scorched earth. Mat kijiye.

  3. The best course for the peresent Government should be to appoint a Special Governor of RBI (like Asthana in CBI), so that he will do all their bidding, and if the governor is not amenable, he will throw charges against him.

  4. India hasn’t had a government that was such an expert at mismanaging the economy than the present one, led my Mr Modi and his know-all advocate friend Mr Jaitley. The author says:

    ” …the personality of the present governor, who is seen as not just rigid but also uncommunicative. Past governors too have been rigid, but willing to engage…”

    Well, can we really blame Mr Urjit Patel for being NOT “willing to engage”? Hasn’t he seen the penchant of this government to put a hand into anyone’s pocket who meekly does not resist? LIC has been regularly “ordered” to bail out disinvestment plans. Recently it has been ordered to bail out IDBI whose major chunk of loans have turned NPAs. This government regularly prods all PSUs to shell out more dividend, and then some more. Even a humbly-poised SAIL is not spared. Oil PSUs are often sent pay-up demand notes. The government cushioned up on a large chunk of money by not reducing fuel prices when international oil prices were so low. And now it is bullying Urjit Patel to shell out nothing less than three lakh crores, and frowning hard at him when he is squirming not to oblige.

    After all Mr Patel is a Banker; it should be considered a virtue in him if he is seen to be a stingy, conservative man. The moot point is, what has this government done with all the money? GST is doing well according to them; banks are flushed with ADDITIONAL funds after demonetization; 20% more people are paying taxes — then why this desperate shortage of funds, so much so that the government has to arm-twist the Chief banker of the country in a manner and to the extent that no previous government has ever done?

    An expert like Mr T.N. Ninan should write another article titled, MYSTERY OF THE VANISHED MONEY.

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