In defence of Urjit Patel (Government’s handling of the RBI relationship)

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In defence of Urjit Patel (Government’s handling of the RBI relationship)

Read more on - Polity | Economy | Schemes | S&T | Environment


  • Two non-confrontational personalities: Both FM Arun Jaitley and RBI Governor Urjit Patel are non-confrontational personalities by nature, yet a very public spat between them has broken.
  • For the first time in 83 years: The use of Section 7 of the RBI Act to consult the RBI in three issues is unprecedented. What follows next will be “instructions”.
  1. Sources of friction:
    1. Quarantining the PSB’s new lending: Since the NPA levels have risen dramatically, only by stopping any fresh lending can newer risks be avoided (as per RBI). Hence the Prompt Corrective Action framework (PCA).
    2. Government’s insistence on power firms: The RBI must not be harsh with power producers’ NPAs (12-Feb circular)
    3. Seigniorage conflict: RBI generates profits in money market ops. Part of that is transferred to the government. Rest is in its own reserves for contingencies. The Govt. wants more of this surplus to be transferred to it.
  • In recent years: The RBI has passed on its entire surpluses in past four years to the govt., leaving nothing to be transferred to its own reserves. Still, the govt. now wants to raid its reserves for Rs.3.6 lakh crores!
  • Easy choices, Tough choices: Expenditure reform is tough to do. Selling Air India didn’t work out. The govt. wants the RBI reserves to plug these big holes. That is not public interest!
  • Is RBI to blame for NPAs? The govt. has conveniently blamed it, but the post of Deputy Governor (incharge, bank supervision) was fell prey to political machinations. RBI Governor wanted a broader, global list of candidates rather than only PSB seniors or IAS officers, but that took very long. Position was vacant for 12 months from May 2017.
  • Losing talent steadily: It has not helped that many talented people were lost, like Raghuram Rajan, Nachiket Mor, Ila Patnaik, Arvind Panagariya, Arvind Subramanian etc. High talent must never be compromised with!
  • Don’t play with the RBI: Other than its meek surrender during demonetisation, the RBI has commanded serious respect in the markets. Playing with it in this tough macroeconomic time is a bad idea.
  • Summary - The government should not force the RBI under Section 7, to do things it should not.
Read more on - Polity | Economy | Schemes | S&T | Environment

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PT's IAS Academy: In defence of Urjit Patel (Government’s handling of the RBI relationship)
In defence of Urjit Patel (Government’s handling of the RBI relationship)
Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!
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