Thursday, 18 August, 2022
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Urjit Patel, RBI, institutional autonomy and the Power of One

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Urjit Patel has a chance to be that one individual with no past or greed for the future who could at least protect the RBI, I had written. He lives up to that.

Six weeks after demonetisation, I had written this column criticising the RBI governor for failing to stand up for his autonomy. I had also written how just one individual, like Justice J.S. Verma in the Supreme Court or T.N. Seshan at the Election Commission, was capable of raising his institution to such a stature that its autonomy would be guaranteed for a long time. 

But, quoting Justice Verma’s words I had said, that one individual can protect and build an institution only if he checks one box on his CV: He should have nothing to hide in his past, and no expectation from the government in the future. 

That article brought me my only communication from Urjit Patel, a man of few words, since he had taken charge at RBI. Interesting thoughts worth keeping in mind, he said in his one-line email. 

Today, as he makes the professional economist’s equivalent of the Supreme Sacrifice to strike a blow for his hallowed institution’s autonomy, I am sharing that 24 December 2016 column again.

The eyes of devoted plagiarism hunters would light up if they put this week’s ‘National Interest’ to the test of their forensics. Old readers of this column will also find this heading and strapline familiar, and for good reason, as this is almost precisely what we had used on another Saturday, 31 July, 2010. So, you could still be charged, if not with being pompous—as in self-referencing—or lazy, or both. It would perhaps have been safer for me to insert just three words, “like the RBI” in the strapline after “institution”. But we don’t usually idiot-proof this column.

The provocation for the original piece six years ago was a line spoken by Justice J.S. Verma at the release of ‘The Cobra Dancer’, the memoir of Election Commission of India’s formidable officer K.J. Rao, who returned from retirement as an advisor at a salary of Rs 12,000 a month and gave us our cleanest elections in Bihar, ending the Lalu family rule.

Justice Verma, then Chief Election Commissioner S.Y. Quraishi and I formed the panel discussing the book. I did ask Justice Verma a question: Could just one individual transform an institution? Just one human being in one finite, short tenure?

He said it was difficult, but possible. Just one individual could have the power to transform an institution and elevate it to the expectations of the founding fathers if he had two qualifications: He should have no past, and no expectation (greed) for the future.

He was himself a personification of the principle he had just put forward: Having transformed two great national institutions, the old Supreme Court of India and the one just forming up, the National Human Rights Commission. Three decades earlier, another judge had similarly reassured us citizens that the Supreme Court would not always fail in protecting our rights — Justice H.R. Khanna during Indira Gandhi’s dictatorial heyday.

We could think of some others too: T.N. Seshan who changed the Election Commission from a paper tiger to a real one so decisively that two decades of political manipulation have failed to wreck it again. Of course, Seshan was helped along by yet another of these resolute individuals to succeed him, J.M. Lyngdoh.

We deliberated then what if a similar individual had risen in the Central Bureau of Investigation (CBI) or the Central Vigilance Commission (CVC). Remember, mid-2010 was when the anti-corruption movement was building up, large scams had made people furious and, while activism was welcome overall, some really bad ideas, like a North Korean style Janlokpal Bill were floating. What if just one great cop with no past to hide, or greed for the future, or a CVC, would transform these institutions to their real potential? A draconian, spy-on-your-neighbour and build-a-thousand-new-jails anti-corruption law would then not be needed.


Also read: Urjit Patel resignation makes clear no economist can function under Modi govt, says Moily


The CBI, if anything, has slid backwards under each new director, incapable of rising from its Central Bureau of Intimidation image. As for the CVC, I dare you to name just two names to have headed this supposedly all-powerful corruption-fighter, they are such nobodies. In fact, I bet, most of us can’t even name its current boss, except that we might have heard from the Congress and Aam Aadmi Party critics lately that he is the officer who headed the income tax probe into the contentious Sahara/Birla diaries. We mean no affront to any individual. It is just that most of our institutions have had a similar fate. The most familiar Chief Justice of India post-Verma, we should note, is Justice R.M. Lodha, whose fame is owed to the doughty committee he has headed post-retirement, to “reform” the Board of Control for Cricket in India.

Twenty-five years after economic reforms began, however, we have also seen the arrival of new, very powerful and important institutions, mainly in the form of regulators, from telecom to insurance to petroleum and environment. Each one awaits the blessing of that ‘Power of One’ as defined by Justice Verma.

Only the Securities and Exchange Board of India, lately, has shown spine under U.K. Sinha, in calling Sahara to account. Don’t underestimate the courage needed for this. The power of Sahara is evident in how top leaders of the Bharatiya Janata Party and even Congress (Ghulam Nabi Azad) presented themselves at the release of a book written by him in Tihar: Exactly on the day Rahul Gandhi had charged the prime minister with taking “bribes” from Sahara based on diaries recovered in an income tax raid.

The Reserve Bank of India is by far our oldest and vital such institution, with the most valuable reputation, earned over the decades. Run your eye over the wall in the Governor’s ante-room in Mumbai, displaying framed portraits of the past incumbents, and you see India’s economic history in one-snapshot. RBI isn’t designed or legislated to be autonomous as the judiciary and Election Commission, or even, say, the CVC or CAG. It is answerable to the finance ministry and through it to Parliament. Yet, successive governments have refrained from messing with it and respect at least a notion of autonomy. It has led to some rough situations, but the politicians have usually fretted, and backed off.

The current incumbent, Urjit Patel, was barely in the job for three months when the institution under his watch took (or was made to take) its most sweeping decision ever.

As to what exact role RBI has played in demonetisation, is a matter of much debate. Depending on whether you hear whispers in the capital’s North Block or Mumbai’s Mint Street, you can hear many different versions of the truth, or fiction.


Also read: Before Urjit Patel, the last RBI governor to quit was under Nehru in 1957


The “fact” on-the-record, however, is that the demonetisation was carried out on the basis of a recommendation by the RBI board. It was necessary to maintain secrecy as the idea was to ambush the crooks. But now that six weeks have passed since secrecy ended, why should RBI not make the agenda of its crucial board meeting and its minutes public? These are not secret, and can be sought through RTI as well. But why should RBI not display transparency by itself?

Go to the RBI website. Its own, short mission statement begins, “To regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India…” Currency is its main responsibility. Silence and secrecy after 8 November, and then the awful flip-flops have not enhanced its image.

Discontinuing the usual practice of releasing weekly bank deposits data, deletion of a statement from its website on total deposits until December 10 without an explanation, doesn’t do justice to a globally respected institution.

Patel is an economist with fine international reputation and enjoys bipartisan respect: He was appointed deputy governor, RBI by the UPA government under Dr Manmohan Singh, in January 2013. He needn’t fight or defy the government, particularly if he is convinced of the need for notebandi. All he needs to say is, RBI is a respected, transparent institution whose actions, backed by data, are open to peer review and debate. And then start releasing relevant data, analysis and projections. RBI isn’t a secret society or a covert, intelligence organisation.

That’s a reasonable expectation. Patel has a chance to be that one individual with no past or greed for the future who could, if not enhance, at least protect the stature of his hallowed institution.

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6 COMMENTS

  1. One wishes Urjit Patel had shown this firmness in November 2016 by refusing to recommend demonetisation. If Modi loses in 2019, which now cannot be just be discarded as an impossibility, epitaphs would be written in post-mortem evaluations. Demonetisation would then certainly be counted as a turning point in the Modi-tenure. The initial euphoria eventually waned and the demonetisation has now started hurting the Modi-regime. Who did Modi consult before taking such a drastic step is a big mystery. Certainly not Arvind Subramanian, ex-CEA. Else, he would not have termed this step as ‘draconian’. Now if a PM doesn’t consult his CEA before embarking upon such an uncertain journey, this certainly was a misadventure. By standing firm, Urjit Patel could have nipped in the bud this failed economic gamble.

  2. First, what was the RBI doing under the great Raghu Raman when the PSU banks were lending to Dubious companies with political patronage. The origins of this banking crisis started with Raghu Raman tenure. Had he been actually doing his job of supervision instead of making speeches mostly not on his subject things perhaps may have been different.

    Now armed with the new laws to bring these defaulters to task, the RBI has gone to the other extreme. They have completely squeezed the liquidity out of the market. And this is adversely affecting the country. What is now needed is a good Kensian style stimulus and hopefully with Patel existing, it will happen soon

  3. Nothing so became Dr Urjit Patel in office as the leaving ( of ) it. He came in for a lot of criticism in relation to demonetisation, a decision that had been effectively made before he was appointed, one which he was powerless to impede or influence. The modalities of its implementation made the RBI the butt of several jokes. However, when it came to finally protecting the core interests of an institution that is respected globally, Dr Patel did what is right. His departure will not be seen kindly by the financial community all over the world. If the RBI’s proud institutional autonomy is now diluted, it will cause immense harm.

  4. Among all regulators RBI , over the years, have delivered on the ground. Indian public sector banks
    are as good as the private ones in terms of service delivery [e.g SBI]. Moreover the public have
    more faith in public banks rather than the private banks. Banking sector being the backbone of
    indian economy needs a strong regulator like RBI with expert advise. The CBSE being a short of
    other regulator have also performed great in school education. I wish we have UGC [ or other
    organisation] with similar skills for giving direction and regulating the indian higher education.
    Economy and human resource [and its development and utilization] are the two most important
    sectors of any country.

  5. Among all regulators RBI , over the years, have delivered on the ground. Indian public sector banks are as good as the private ones in terms of service delivery [e.g SBI]. Moreover the public have more faith in public banks rather than the private banks. Banking sector being the backbone of indian economy needs a strong regulator like RBI with expert advise. The CBSE being a short of other regulator have also performed great in school education. I wish we have UGC [ or other organisation] with similar skills for giving direction and regulating the indian higher education. Economy and human resource [and its development and utilization] are the two most important sectors of any country.

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