India central bank chief quits amid tussle with government

The RBI Governor has cited personal reasons for his resignation
India central bank chief quits amid tussle with government
Urjit R Patel
By James Mathew
Mon 10 Dec 2018 05:04 PM

Governor of India’s central bank (RBI) Urjit R Patel has resigned today, a development that is expected to cause major turmoil in the country’s stock market, and possibly adversely impact its sovereign rating and economy on a medium-to-longer term basis.

The RBI Governor has cited personal reasons for his resignation, which is with immediate effect.

“On account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honour to serve in the Reserve Bank of India in various capacities over the years,” he said in a brief statement.

Economists and political analysts in India, however, see the central bank Governor’s decision to quit as a culmination of the on-going tussle between India’s central government and RBI over a range of issues, including the autonomy of the central bank and finance ministry’s reported demand for transfer of a significant amount of funds from the reserves of the central bank to the government.

Among the issues were relaxation on restrictions on lending and deposit takings by some of the weaker Indian public sector banks, as well as taking immediate measures to ease liquidity crunch in the NBFC (non-banking financial companies) sector, following the bust of IL&FS.

‘‘The RBI governor’s resignation shows that the differences between the government and the central bank may have become irreconcilable,’’ Ashok Jha, former Indian finance secretary, told Arabian Business.

India’s central bank has been held with great respect internationally and among other central banks, and the current development could make a dent on this, Jha said.

Significantly, the RBI governor’s resignation comes on the eve of the results of the recent elections held in 5 Indian states, among them the three politically important states of Madhya Pradesh, Rajasthan and Chhattisgarh – all three currently ruled by the BJP - which have been touted as the semi-finals for the general elections in 2019.

"The development at RBI may not have any immediate impact for corporate sector in India. The major worry for us is its likely fallout on India’s sovereign credit rating. If the country’s rating is affected, borrowing costs for companies will go up significantly," R Guha, finance director at British paints and speciality chemicals major Akzo Nobel India, told Arabian Business.

Patel took charge as the RBI governor on 4 September 2016, after Raghuram Rajan resigned from the post on 19 June of that year. Patel’s term as RBI governor was to end in September 2019.

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