Big setback

The resignation of Reserve Bank of India (RBI) Governor Urijit Patel on Monday evening is a major setback. He resigned amid growing differences with the central government over a range of subjects including the central bank’s autonomy. With over a year left in his term, the resignation has sent shockwaves in the country. The government of India has been putting pressure on the RBI to ease its regulatory curbs on some banks, infuse more liquidity and relax capital norms as it faces a slowing economy ahead of general elections due by May next year.
The friction between the government and the RBI exploded in November, when Deputy Governor Viral Acharya, giving an example of the Argentinian government’s interference in the central bank, had said that undermining a central bank’s independence could be “potentially catastrophic”. With central govt looking to RBI reserves to infuse cash into market in the election year, the efforts to undermine autonomy of RBI lead to bitter feud. Urijit Patel and his team have been resisting the move of central government to interfere in its functioning. On the other hand government appointed central board members in RBI has been gunning for both RBI governor and his deputy for quite some time. It will be interesting to see how markets especially the foreign investors react to this latest development. The days of uncertainty lies ahead for Indian economy. Also the efforts of government to try meddling in the functioning of RBI do not augur well for the independence of institutions like RBI. The present regime has badly hurt the image of CBI and RBI with their erratic policies.