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RBI : Resignation Becomes Inevitable

What happens when an unstoppable force meets an immovable object? A collision of epic proportions that has far ranging effects. No! We’re not talking about the phrase that is referenced in Christopher Nolan’s Oscar winning 2008 epic “The Dark Knight” when the Joker, who is an unstoppable criminal force, comes up against Batman, who is an incorruptible vigilante crusader. We’re talking about the effect our financial system and economy will be forced to undergo when the dust finally settles on the fall out between the unstoppable Narendra Modi led political machinery of the Bharatiya Janata Party (BJP) collides with the immovable and incorruptible erstwhile Governor Urjit Patel led outfit, the Reserve Bank of India (RBI).

Amid an already volatile political and economic atmosphere which includes state election results, unfavourable macroeconomic conditions and weak global cues, we were thrown further off balance when the Governor of RBI, Urjit Patel put in his papers at close of business hours on Monday – with immediate effect. One could say that the writing was already on the wall, as the two heavyweights (FM Arun Jaitley and Urjit Patel) did not see eye to eye on a host of issues ranging from economic capital framework, regulatory norms such as PCA, nominees on the board of RBI, transfer of reserves and liquidity crisis among others. Even the long 9 hour meeting held on November 19th between the top brass of finance ministry and RBI officials ended with an uneasy truce without a firm agreement.

Important issues among others that may have finally provoked the RBI Governor to snap the cord

Autonomy is the most sacred pillar on which the foundation of the RBI is built and there are far too many allegations that the BJP led government is systematically eroding institutions in the country to throw cold water on. Urjit Patel who was the 24th governor of the RBI took up office on 4th September 2016 and was expected to remain incumbent until September 2019. His resignation gives him the undesirable distinction of being the first governor since 1990 to step down before his term ends. The effect of his resignation is yet to be felt in the financial system and stock markets, most sensitive of which are the sentiments of foreign investors (FII’s) who consider interfering with the central bank’s independence to be a touchy topic. Rating agencies are another important element in this equation and an unfavourable outlook by such agencies could see massive outflows of capital from the country at a time when we can ill afford it.

The timing of this resignation is also cause for suspicion. It is likely the governor had made up his mind to quit a while back, but may have been coaxed into announcing it only a day prior to the results of the all-important state elections, so as not to hamper the chances of the incumbent government when polling was on. It was no surprise that comments poured in from all quarters of the political and economic spectrum, some in support and some against the decision, with the statement of former governor Raghuram Rajan resonating the most, who warned that the entire country should be worried and that it is a matter of great concern. Traditionally, the RBI is a conservative organisation whose board is meant to act in an advisory capacity. But, with government intervention at every step of the way, its board is being moulded to become an operational one, which goes against its basic character

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