Patel’s decision to leave rather than accept the threat to the RBI’s autonomy has a certain nobility. But he might have offered a fuller explanation of the circumstances behind his exit
Finance: People who know Urjit Patel, the Reserve Bank of India governor, told me he would stay on and fight. That was in late October, when it became clear from his deputy’s speech that New Delhi was making a determined attempt to curtail the RBI’s authority as a banking regulator, and even to raid its capital.
But after a November meeting of the institution’s board, it looked like the central bank and the government had decided not to bring matters to a head and Patel, whose term expires in September 2019, would stick around. The truce was short-lived. Citing personal reasons, the governor said on Monday that he’d be stepping down immediately, just days before another crucial meeting of the RBI board. The terse resignation note made no attempt to thank the country’s finance minister or Prime Minister Narendra Modi, both of whom said goodbye to Patel on Twitter.|Urjit Patel
Indian markets are already jittery about state elections, whose outcome will be known Tuesday. Any sign that Modi’s popularity is waning amid a deepening agrarian crisis would make investors nervous ahead of general elections next year. An uncertain period for India’s politics just as its central bank’s integrity is under assault could accelerate the $2.9 billion flight of foreign capital from the country’s equity markets this quarter.
Patel’s decision to leave rather than accept the threat to the RBI’s autonomy has a certain nobility. But he might have offered a fuller explanation of the circumstances behind his exit. Has the government used (or threatened to use) Section 7 of the RBI Act to instruct the governor in the “national interest?” If so, we need to hear from Patel about what exactly he was being told to do. Release state-run banks — loaded down with bad debts — from lending restrictions? Relax a circular that made it hard for errant corporate borrowers to avoid bankruptcy courts? Give a special dividend to the government?
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