[But tensions between the Reserve Bank of India, which Mr. Patel led, and the government had grown to the point that one of his deputies, Viral Acharya, gave a speech in October warning of the perils of too much government interference.]
By
Vindu Goel
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Urjit Patel resigned from
his position leading India’s central bank on Monday, almost
a year before his term was to
end. India’s government has tried to exert more control
over the central bank’s
policies. Credit Francis Mascarenhas/Reuters
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MUMBAI,
India — India’s top central
banker resigned on Monday after tussling for months with Prime Minister
Narendra Modi’s government over its desire to exert more control over the
bank’s regulations and tap its reserves to increase government spending.
The departure of the banker, Urjit Patel,
came almost a year before his term was to end and sent India’s currency, the
rupee, down nearly 2 percent. Concerns about a slowing economy and a sharp
spike in oil prices had already caused India’s stock market to give up most of
its gains for the year.
“This will give a very bad signal to the
Indian markets,” said Sebastian Morris, a professor of economics at the Indian
Institute of Management in Ahmedabad. “It establishes beyond a doubt that Mr.
Modi cannot get along with anyone with an independent mind.”
Officially, Mr. Patel said he was resigning
for “personal reasons.” And Mr. Modi posted a message of praise for the
economist on Twitter, saying, “Dr. Urjit Patel is a thorough professional with
impeccable integrity.”
But tensions between the Reserve Bank of
India, which Mr. Patel led, and the government had grown to the point that one
of his deputies, Viral Acharya, gave a speech in October warning of the perils
of too much government interference.
“Governments that do not respect central bank
independence will sooner or later incur the wrath of financial markets, ignite
economic fire and come to rue the day they undermined an important regulatory
institution,” Mr. Acharya said then.
Mr. Modi’s government had threatened to
invoke an obscure legal provision to force the central bank to adopt certain
policies.
In particular, the government sought to
soften the central bank’s rules for new lending by state-owned banks, which are
struggling to manage their portfolios of previous bad loans.
Mr. Modi had also sought a transfer of some
of the central bank’s $132 billion in cash reserves to pump up government
spending before elections next May, a measure the central bankers had resisted.
The central bank has been criticized for
micromanaging the country’s banks, forcing them to hold more capital than
required by international standards, and adopting tough new rules without
consultation. Those rules include a recent order that payments processors like
Visa and Mastercard store all payment data involving Indians exclusively in
India.
Mr. Modi’s Bharatiya Janata Party won an
overwhelming victory in national elections in 2014, but it has struggled to
maintain its popularity amid a rocky economic record.
Unhappy farmers recently marched on the
capital in New Delhi and in Mumbai, the country’s financial center, to demand
loan forgiveness and higher crop prices. Legions of small shopkeepers and
manufacturers have complained about the paperwork involved in one of Mr. Modi’s
signature policies, the imposition of a national goods and services tax.
Mr. Modi’s other major economic policy, the
sudden invalidation of paper money in November 2016, has been roundly
criticized by economists as causing great disruption to India’s cash-based
economy without providing any real benefits. Mr. Patel and the central bank
were forced to manage the fallout of the move.
On Tuesday, election officials will tally the
votes in legislative elections in five states, providing an early indicator of
Mr. Modi’s re-election prospects next year.
Mr. Patel, whose term was to end next
September, decided not to wait it out.
“Patel swallowed a lot of bitter pills,” said
Arun Kumar, an economics professor at the Institute of Social Sciences near New
Delhi. “The pressure from the government was increasing.”
Follow Vindu Goel on Twitter: @vindugoel.
