Central Bank Chief's Resignation Shocks India

By Shakir Husain NEW DELHI, Dec 11 (Bernama) -- India's business and political circles have reacted with shock and unease over the central bank chief's sudden resignation. Reserve Bank India (RBI) governor Urjit Patel announced on Monday: "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." Though he made no reference to the widely reported policy friction between the RBI and the Indian government, many believe Patel was left with no choice under the prevailing situation. At stake is the venerable RBI's independence, which has come under pressure as the government reportedly wants lower interest rates and more cash from the central bank's surplus reserves. Patel's predecessor Raghuram Rajan, who left in September 2016 after completing his term, expressed concern over the governor's unexpected exit. "It is a matter of great concern. We need to ask what were the circumstances that led to Dr Patel resigning and the government must take extreme care in how it proceeds further in its relationship with the RBI," Rajan was a quoted as saying by Indian media. "Wiser heads should prevail in the current environment and the circumstances that led to this resignation have to be reversed," he said. The Hindustan Times said in an editorial on Tuesday that "the real reason for his exit is no secret" and the issues that led to Patel's departure remain unresolved. Former prime minister Manmohan Singh, who served as RBI chief between September 1982 and January 1985, said he was worried about Patel's sudden resignation "at a time when the Indian economy is faced with many headwinds." He said there have been apprehensions about the government's "intent to raid the capital reserves" of the RBI for fiscal purposes. "I hope the resignation of the governor is not a sign that this may soon become a reality," Singh said in a statement. The rupee fell 1.5 per cent to 72.46 against the US dollar and stocks plunged in early trade on Tuesday before making a recovery. Patel quit days ahead of a crucial meeting of the RBI board that was likely to discuss the reported tension between the central bank and the Finance Ministry. He supported the shock "demonetisation" of November 2016 when the government banned large denomination bank notes, rendering 86 per cent of the currency in circulation invalid. The move was widely criticised and seen as detrimental to small businesses and farmers rather than achieving its purported objectives of curbing corruption and bringing unaccounted wealth into the banking system. Prime Minister Narendra Modi praised Patel, calling him "a thorough professional with impeccable integrity”. "He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI brought financial stability," Modi said. Critics say the RBI’s credibility is at risk, and investors are keen to find out who will succeed Patel. "Make no mistake, this government's intention is to make RBI a board-managed company," former finance minister Palaniappan Chidambaram said in comments on Twitter. Chidambaram says the government's "immediate agenda is to grab the reserves of the RBI to meet its fiscal deficit target and to get funds for spending in an election year." India is due to hold its national elections next year, with opposition parties discussing an alliance to challenge the ruling Bharatiya Janata Party (BJP). -- BERNAMA