The curious link between demonetisation, RBI and GSPC

As we all know, the country is in the midst of a financial emergency. Money is being rationed. Citizens are not being allowed to take out their own money from their bank accounts. The economy is on the brink of a collapse. There is growing frustration among citizens over restrictions on access to money. It is important to understand the chain of events that unfolded to this disaster.

On November 8, when the Prime Minister decided to render 86% of all currency illegal overnight, he presumably consulted with the Reserve Bank of India (RBI). RBI is the monetary authority of India and is solely responsible for making bank notes available to all residents of India. It is the RBI that has the final responsibility for designing, printing and issuing currency notes in the country. So, it is inconceivable that this decision could have been taken by the Prime Minister without the approval of the RBI.

If the RBI headed by Governor Urjit Patel gave its approval to the Prime Minister, then ostensibly the RBI was confident of making currency notes available easily. We all know that is not the case today. There are not enough notes in the system and this shortage can continue for at least a few more weeks, if not months.

It is then even more shocking that the RBI Governor has not uttered a word in public in the last two weeks on the situation confronting the nation. How can the head of the RBI that is solely responsible for the current currency crisis not been seen clarifying and assuring the nation amid this grave crisis? The government speaking on the situation is not the same as the RBI speaking, since the central bank is independent and autonomous, as it should be. Or is it?

Urjit Patel was appointed as the Governor of the RBI this September by the Narendra Modi government. Urjit Patel was also an independent director and the chairman of the audit committee of the Gujarat State Petroleum Corporation (GSPC) from FY’06 to FY’13. Narendra Modi was the Chief Minister of Gujarat in this period. GSPC is a Gujarat state public sector company, under the Ministry of Petrochemicals & Energy. The Minister was Saurabh Dalal Patel. During this time GSPC’s loans from banks ballooned from ₹270 crores to ₹14,000 crores.

The Comptroller & Auditor General of India (CAG) has issued a scathing report on the borrowings of GSPC, which has all been squandered away. GSPC had a joint venture with another company Gujarat Natural Resources Ltd (GNRL) for many of its oil and gas blocks. GNRL, contrary to its misleading name, is a private limited company and not a state enterprise. Saurabh Patel, the Minister overseeing GSPC, is a beneficiary investor in GNRL. This has been revealed by the Indian Express in its investigative report on November 22, 2016. Urjit Patel, as an independent director and chair of the audit committee of GSPC, not only approved GSPC’s excessive borrowings from banks that he now oversees as RBI Governor, but also failed to highlight this obvious conflicted related party relationship between the Minister and GSPC. Saurabh Patel was a close confidante of Narendra Modi.

With this background, is it still a surprise that the RBI Governor has maintained a stoic silence through this entire currency crisis of the last two weeks? Would it be a surprise if Urjit Patel has sacrificed the independence of the RBI at the altar of Narendra Modi? Was Urjit Patel honest with his views to the Prime Minister on the whole demonetisation idea? Urjit Patel is either guilty of misleading the nation about the RBI’s preparedness to handle the currency situation, or was complicit with the Prime Minister in plunging the nation into this crisis, sacrificing the autonomy of the nearly 100 year-old RBI. Either way, has he any option but to resign?

Jairam Ramesh is a Congress Rajya Sabha MP and the former Union Minister for Rural Development. He tweets at @Jairam_Ramesh