Centre’s interference creates a crisis in RBI; Patel no longer on talking terms with govt: report

The ongoing tussle between the Reserve Bank of India (RBI) and Centre has reached a point, with Governor Urjit Patel no longer on talking terms with the top functionaries of the Modi government.

The reason seems crystal clear: the RBI has refused to become the puppet of the government. Some recently appointed non-executive directors of the Reserve Bank, brought in by the government, feature at the epicentre of the dispute.

According to reports, the government’s repeated interference in key policy decisions has not gone down well with the RBI either.

Cracks between the RBI and the government started appearing two months ago after the government appointed S Gurumurthy as part-time director on the board of the RBI. Gurumurthy has been known for his right-wing leanings and is said to be close to Prime Minister Narendra Modi.

It is believed Gurumurthy was also the brains behind PM Modi’s decision of demonetisation in November 2016. It is important to note that government’s controversial decision of scrapping high-currency notes overnight was taken just three months into the tenure of Urjit Patel.

The rift has only been widening since.

According to a report published in The Times of India earlier this year, the differences between the bank and the government have arisen over at least half a dozen policy issues.

It is being said that the government's displeasure with the RBI is that it is not ready to cut interest rates keeping an eye on the inflation rate. Besides, further differences had cropped up after fugitive businessman Nirav Modi’s bank fraud surfaced in public. While the Modi government had apportioned the blame of Nirav Modi’s fraud on the RBI, Patel had at the time indicated that the RBI should have more powers to monitor the public sector banks.

After this, the government raised an eyebrow when the RBI issued a circular on the non-performing assets (NPAs). Because, according to the government, the RBI had opted for a very strict attitude in this circular.

The relations reached a point of no return after the government reportedly cut short the second stint of Nachiketa Mor, a member of the RBI Board, in September, without taking Patel into loop.

According to reports, Mor’s removal was prompted by a letter from the Swadeshi Jagran Manch, the economic think tank affiliated to the Rashtriya Swayamsewak Sangh (RSS). Mor, who was brought in by the UPA-2 in 2013, had been critical of various policies of the Modi government, which reportedly didn’t go in his favour either.

Gurumurthy, on the other hand, was known to be close to the Manch. It must be noted that Gurumurthy had been a vocal critic of the RBI before he was brought into the apex bank.

For instance, he had tweeted in July,

A month after the tweet, Gurumurthy was inducted into the RBI.

It is believed that Gurumurthy has been given a clear mandate to overlook the functioning of the RBI and even has blessings of the Prime Minister’s Office to interfere in crucial policy matters.

The prevailing mood in the RBI was reflected during a lecture by Bank’s Deputy Governor Viral Acharya last week, as he expressed concern over the growing interference of the government in RBI’s functioning.

According to reports, Governor Urjit Patel, whose term ends in September next year, is no longer seeking a reappointment. For the government, to send off another Governor after a single term, after the stepping down of his predecessor, Raghuram Rajan, would pose critical questions vis-a-vis its attitude towards the RBI.