RBI Governor One in List of Resignations By Economic Experts Under PM Modi
Spate of resignations
Since Narendra Modi came to power in May 2014, a series of top government economic personnel have quit. The list is long considering the fact that the Modi regime is only four years old. Those who have quit so far are two Reserve Bank of India (RBI) Governors, Raghuram Rajan and Urjit Patel; a Vice Chairman of the NITI Aayog, Arvind Panagariya, and a Chief Economic Advisor, Arvind Subramanian.
The excuse trotted out by those who quit was always “personal reasons.” And Prime Minister Modi and Finance Minister Arun Jaitley would routinely say nice things about them in their farewell tweets.
But anyone watching the Modi government’s handling of economic affairs would know that the stated reasons for quitting and the sweetly worded tweets were but attempts to hide the ugly truth that these eminent men were unable to work under Modi’s crassly political agenda set by the Rashtriya Swayamsewak Sangh (RSS).
The first to go was RBI Governor Raghuram Rajan. The Chicago University economist was Governor from 2013 to 2016 and was due for an extension when he decided to quit to get back to Chicago. But the real reason for quitting was a vicious tirade against him carried out by Bharatiya Janata Party (BJP) MP Dr.Subramanian Swamy and Prime Minister Modi’s decision not to defend him. Finance Minister Jaitley, who apparently had high regard for Rajan, failed to speak up in his defense obviously under instructions from Modi.
In a letter to the Prime Minister, Subramanian Swamy had accused Rajan of giving away secret financial information to foreign interests through emails. Swamy said that this posed a threat to national security and demanded Rajan’s immediate removal. The maverick politician also accused Rajan of not having an “Indian mind” after the Governor refused to lower interest rates to help the small and medium industries.
While Swamy was making these wild charges, a newspaper carried a report saying that the next RBI Governor would be chosen by an interview panel. This meant that Rajan would have had to subject himself to a fresh interview if he wanted an extension. The government’s stipulation revealed a lack of support for Rajan. Significantly ,Modi did not comment on Rajan’s leaving, nor did Rajan take leave of Modi.
Rajan had annoyed Modi when he broke convention and made a foray into political territory when he said that social tolerance is vital for a country's development. Rajan was obliquely referring to the lynching of Muslims by RSS inspired goons for eating or carrying beef. Hate speech against minority communities was freely allowed under BJP rule.
The next to go was Arvind Panagariya, Modi’s handpicked Vice Chairman of NITI Aayog, a national think tank which was meant to be a successor of the Nehru-created Planning Commission.
The Colombia economist had joined NITI Aayog in 2015 and quit in 2017 before time, saying that he wanted to get back to academics. But the real reason was that NITI Aayog did not have the powers of the Planning Commission. It could only recommend, not direct. Though he was given cabinet rank Patel was not invited for cabinet meetings.
Panagariya had also stepped on Modi’s toes by writing to him on the hardships the 2016 demonetization exercise had inflicted on the public. He was also unhappy with the pace of reforms in the first two years of the Modi government.
Chief Economic Advisor (CEA) Arvind Subramanian left the Finance Ministry in June this year supposedly because of "pressing family commitments." The former Senior Fellow at the Peterson Institute for International Economics ,had taken charge as CEA in October 2014 and left it in June 2018.
The sensitive post had been lying vacant since September 2013 after Raghuram Rajan left to take over as RBI Governor. The delay in appointing a CEA was apparently because the Modi government had difficulty in finding a suitable right wing, Hindutwite economist to toe the regime’s line in toto.
It is clear from his book "Of Counsel: The Challenges of the Modi-Jaitley Economy", that Arvind Subramanian was not happy with Modi’s trade mark project “demonetization” which took place in November 2016.
“Demonetization was a massive, draconian, monetary shock: In one fell swoop, 86 per cent of the currency in circulation was withdrawn," Subramanian said in the book.
Subramamnian also said that the new Gross Domestic Product (GDP) back-series data, released recently by the Central Statistics Office and NITI Aayog, had hurt the credibility of official data. He questioned the General Sales Tax’s design and predicted that the country's economy would slowdown as a result of the GST’s design.
Reserve Bank Governor Urjit Patel was initially seen as Modi's man. Indeed, Patel proved this by not publicly commenting on demonetization, loan defaults and Non Performing Assets in the State banks.
But the government stepped on Patel’s toes by trying to dictate terms to the RBI at the instance of the RSS-linked ‘nationalist’ economists like S.Gurumurthi ,who joined the RBI’s board.
The RBI and the Modi government had been engaged in a bitter face-off over the former’s autonomy. The government had sought to limit curbs on lending and gain access to RBI reserves. The friction came into the open when RBI Deputy Governor Viral Acharya warned that compromising the RBI’s independence could be “catastrophic”.
Matters came to a head when the government issued three letters to Patel, threatening to invoke Sec. 7 of RBI Act of 1934 which allows the government to give directions to the RBI eroding its statutory independence.
The Modi government wanted lending to be eased to help it launch pre-election programs. The poorly performing Bharatiya Janata Party (BJP) government wanted to launch crash programs and increase aid to micro and small and medium industries to win the May 2019 parliamentary election.
But Patel said no to Modi’s demands. He also resented being dictated to by the RBI board which had RSS-oriented ideologues like S.Gurumurthi.
However, at the last board meeting, Patel had made concessions on the capital adequacy of banks. Issues of transfer of surplus reserves of RBI to the government and the relaxation of norms for weak banks were referred to committees. The board advised RBI to let banks recast loans up to Rs.250 million to the micro, small and medium industrial sector.
But Patel had already decided to quit rather than continue under the existing dispensation.
Former Indian Prime Minister Manmohan Singh termed Urjit Patel's resignation as 'very unfortunate' and said it was a 'severe blow' to the country's economy.
In a statement, Singh said he hoped that the RBI Governor's sudden resignation is not a harbinger of Prime Minister Narendra Modi-led government's attempts to 'destroy' the institutional foundations of India's US $3 trillion economy.
He said it will be 'foolhardy' to diminish institutions for short-term political gains.
"It is with great sadness that I received the news of the resignation of the Governor of the Reserve Bank of India, Urjit Patel," Singh said.
"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," he said.
The former Prime Minister added that he has known Patel to be an economist of high repute and also someone who cared deeply about India's financial institutions and economic policy.
"Building institutions take a long time and effort but they can be destroyed in a whimper. It is institutions such as the RBI, among many others, that have served as the edifice of our great nation's progress since independence. It will be foolhardy to diminish these institutions for short-term political gains," Singh said.
In his reaction, Raghuram Rajan said: “I think this is something all Indians should be concerned about because strength of our institution is really important, both for growth and sustainable growth in equity and the economy.”
Ratings agency Moody’s Investor Service said in a statement: “The independence of a central bank is an important consideration in our assessment of a sovereign’s institutional strength. We would consider signs that the government attempts to curtail the central bank’s independence to be credit negative.”