Rewind 2018: Urjit Patel's resignation is a beginning of a new story

Govt also pushed for RBI decision-making to be a more consultative process, meaning board members should have more say

After months of speculation Reserve Bank of India Governor Urjit Patel submitted his resignation on December 10, the first incumbent to do so since economic liberalisation. Tensions had been building for some time, especially from August, with the government appointing two loyalists to the RBI board — maverick accountant and Swadeshi Jagran Manch co-convenor S Gurumurthy and cooperative banker and former Akhil Bharatiya Vidyarthi Parishad treasurer Satish Marathe. Their induction was seen as disturbing the intricate relationship between the central bank and government. It coincided with the RBI coming under pressure to part with a larger share of its capital reserves to shore up government finances and to ease lending restrictions on public sector banks under the Prompt Corrective Action regime, especially to the ailing small and medium enterprises sector. The government also pushed for RBI decision-making to be a more consultative process, meaning board members should have more say. RBI interpreted this as a direct undermining of its central board. With tensions mounting between Mint Road and Raisina Hill, Deputy Governor Viral Acharya delivered a speech outlining the case for the central bank’s autonomy in the interests of long-term financial stability. It was seen as a pointed message to the government. There the issue rested in a miasma of rumour that the government would invoke the never-used Section 7 of the RBI Act  — which involves a direct order from the government to the RBI to carry out its wishes. A day before the results of five state elections were to be declared and two days before a much-anticipated board meeting, Patel officially put in his papers. Two days later, former economic affairs secretary Shaktikanta Das, who had been the government’s chief spokesman during demonetisation, was appointed as his successor. The board meeting appeared to have gone off without incident, but this is only the beginning of a new story.