Dr. Urjit Patel, an economist of the highest order with deep and insightful knowledge of economic concepts, handled the Indian economy in the most sensitive times. Just after two months of his appointment in the office as an RBI Governor, the Indian economy witnessed a major change in its system with surprising demonetization in effect. But the way Dr. Urjit Patel handled the situation and brought the nation back to stability at the earliest is commendable. However, the sudden resignation of such a thorough professional has left the country in a state of deep despair, questioning the widening ties between the Central Government and the RBI.
A RIFT BETWEEN THE GOVERNMENT AND THE RBI
After a scrappy clash between Narendra Modi-led government over the liquidity crunch in the economy, Dr. Urjit Patel resigned on Monday from his position with an immediate effect. Though Patel has cited personal reasons for vacating the office, given the recent controversies, it would not be wrong to assume that Patel withdrew when RBI’s autonomy faced pressures from the government. There was a range of issues related to liquidity, credit flow and controls governing weaker banks at which the views of the Government and the RBI clashed. However, the decision of the former governor to keep the repo rate unchanged came as a severe blow to the situation. The friction came to light when Viral Acharya, RBI Deputy governor, warned that threatening the central bank’s independence could be “catastrophic”. This was followed by Jaitley publicly attacking the central bank of sleeping on the job and for its failure to keep a check on the indiscriminate lending by public sector banks. However, matters worsened after the government issued three letters to Patel, threatening to invoke Section 7 of the Reserve Bank of India Act, 1934. Unfortunately, this step came just 10 months ahead of the end of his term, indicating a rift between the Government and the RBI. This could trigger a major crisis in the country, disturbing the politico-economic atmosphere in the country.
ALL THAT HAPPENED AFTER PATEL’S RESIGNATION
Patel’s resignation had a critical effect on the market where the Rupee forwards posted their biggest daily slump in more than five years; the Sensex fell by approximately 750 points and closed at less than the 35,000 mark on Monday evening.
Former Indian Prime Minister, Manmohan Singh, expressed his concern on Patel’s resignation and said, “Urjit Patel’s sudden decision to step down is a severe blow to the economy. Patel’s sudden resignation, at a time when the Indian economy is faced with many headwinds, is very unfortunate and is a severe blow to the nation’s economy”.
On Tuesday, the Appointment Committee of the Cabinet approved the appointment of Shaktikanta Das, former Secretary, Department of Economic Affairs, as the governor of the Reserve Bank of India for a period of three years.