The head of India’s central bank resigned on Monday following a public spat with Prime Minister Narendra Modi’s administration about alleged government interference.
Reserve Bank of India (RBI) governor Urjit Patel cited “personal reasons” for his decision, but media reports have said that he was annoyed by repeated government efforts to influence central bank policy. It comes after Patel’s deputy, Viral Acharya, warned the government in a strongly worded speech in October that undermining the bank’s independence could be “potentially catastrophic.”
Patel’s short statement on Monday made no mention of the rift, highlighting only what he called the RBI’s “considerable accomplishments in recent years.”
“On account of personal reasons, I have decided to step down from my current position effective immediately,” Patel said in the statement which was posted on the bank’s website.
The governor and finance ministry officials were reported to be at loggerheads in recent months over claims that the government was trying to influence the bank’s decision-making.
Indian business dailies reported in October and November that Modi’s government had invoked never-before-used powers to send at least three letters to Patel seeking to direct policy. Newspapers suggested that Patel was close to quitting over the issue at the time, but the tension was believed to have been diffused following clear-the-air talks three weeks ago.
“The RBI and the government had numerous differences but Patel’s resignation is shocking,” said Sujan Hajra, an economist at Anand Rathi securities. “There was a belief both were ironing out their differences but the resignation raises issues about the RBI’s independence,” he added.
The government is believed to be unhappy with the RBI over a number of issues including interest rates, how to deploy reserves and how to respond to India’s sliding rupee. The rupee has been one of Asia’s worst performing currencies this year, although it has bounced back in the past fortnight, while economic growth slowed to under eight percent in the last quarter. It is understood the government is pressuring the bank to enact policies to help spur growth ahead of next year’s elections, when Modi will run for a second term. The government would like the RBI to lower interest rates and free up more of its cash reserves to invest in Asia’s third-largest economy, analysts say.
Finance minister Arun Jaitley in October hit out at the RBI over a multi-billion-dollar bank loan crisis that is hampering India’s corporate sector. Jaitley accused the RBI of failing to stop indiscriminate lending from 2008 to 2014, saying it had “looked the other way” while banks issued loans that turned sour. The rift flared up again when economic hardliners from a powerful Hindu nationalist group linked to Modi’s ruling Bharatiya Janata Party (BJP) told Patel to fall in line with the government or quit.
Patel served as a deputy governor at the bank for three years before succeeding Raghuram Rajan in the top job in August 2016. His term at the helm was due to end in September 2019.
Jaitley tweeted on Monday that the government “acknowledges with deep sense of appreciation” Patel’s time at the bank. “It was a pleasure for me to deal with him and benefit from his scholarship. I wish Dr. Patel all the very best and many more years of public service,” he wrote.
Modi described Patel as a “thorough professional with impeccable integrity.” He wrote on Twitter, “He leaves behind a great legacy. We will miss him immensely.”