RBI Governor’s exit, another stigma on government image


The government of India earned criticism for its interference in high, independently functioning  institutions for political gains and this is not limited to the CBI, which is used by every regime to settle score with its political rivals and consequently the intelligence wing got sobriquet of ‘caged parrot’ from the Supreme Court. The CBI and Enforcement Directorate were used by the government to harass the opposition party leaders. It is also alleged that even Supreme Court was influenced to gain favourable verdicts. Now there is a continuous tussle between the Reserve Bank of India and the government. The government took the decision to scrap the high denomination notes against the advice of the then Governor of Reserve Bank of India Raghuram Rajan. Though many people died in queues while taking their own deposits from banks in the wake of demonetization, people suffered silently. The bank officials were lauded for functioning under the burden of the work, but government justifiably earned the wrath of the people. The autonomy of the Reserve Bank of India is a vital factor and now that is under threat. The services of the outgoing Governor Raghuram Rajan were appreciated but he refused to take second term only due to strained relations between him and the government. In October this year deputy governor of RBI Viral Acharya said, “Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire and come to rue the day they undermined an important regulatory institution.” That was a clear indication that all was not well between the RBI and the government.

Then it was reported that the government was eyeing huge amount from the reserves of the RBI to fix its financial mismanagement. The RBI Governor Urjit Patel was adamant not to submit to the government. There were strong rumours that Urjit Patel would resign in the board meeting of the bank on November 19. It was reported that the differences were settled in the meeting and the Governor was not provoked. But everyone who is related to the financial affairs of the country was shocked when on December 10 Urjit Patel tendered his resignation and said he was quitting on personal grounds. No one has accepted this explanation and it is only concluded that the differences reached their peak resulting in his resignation. The reports said that the government invoked Section 7 of the RBI Act which has never been used since its legislation during the British period. According to this Section the government can issue directions to the RBI. Although the directions are to be issued with the consultation of the Governor but these consultations may be formal. The invocation of the Section itself which was not used by any previous government is bound to damage the image of the government. Former PM Manmohan Singh who also served as the Governor of the RBI, said the resignation was a severe blow to the economy. Former Finance Minister P Chidambaram said the Governor thought the government would retrace its step, but it did not and Urjit Patel was forced to resign. However, the Prime Minister and Finance Minister lauded the services of the outgoing Governor. Customary praising of official is a routine matter but keeping cordial ties with the institution like RBI is an obligation on the part of the government.


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