A rift was brewing between the government and the RBI for quite some time and the resignation was only the ultimate explosion of the episode. In the final lap of his tenure as Prime Minister Narendra Modi was forced to appoint Shaktikanta Das as governor. Though, from the 1984 batch of the IAS, he is a stranger, as far as RBI is concerned. His enthusiastic support for the government during the strife ridden days of note ban might be the reason that influenced the Prime Minister for his elevation.

Shaktikanta Das is now asked to perform as the third Governor during Modi’s Prime Ministership. Narendra Modi has made two more appointments that are crucial to the economy when less than six months are pending before 2019 elections.

As finance secretary Ajay Narayan Jha was appointed and Krishnamurti Subramanian was made the chief economic adviser. All these last minute fire fighting measures are pointers to the crisis in the economic system and the panic it created among the political top brass. Urjit Patel, in the initial days was considered as the blue-eyed boy of the Prime Minister.

When Raghuram Rajan had an unpleasant exit from the RBI, Narendra Modi handpicked Urjit Patel to lead the central Bank which is often called as the bank of banks. The fact that he was born in Nairobi and was a Kenyan citizen until 2013 did not prevent him from joining. Being an ardent exponent of neo liberal policies, Modi expected him to dance according to the tunes set by the government.

Up to an extent Urjit Patel was willing to follow their suite. But as with the passing of time, political pressure was mounted, the governor found it difficult to continue as the ‘yes-boy’ of rulers. It was not because he wanted to distant himself from neo liberal policies, but the electoral compulsions of ruling circles were so acute that they opted to ignore even the basic economic principles. Several of the Modi magic failed miserably.

Demonetisation which was depicted as an effective measure to strengthen the financial situation thoroughly boomeranged. It led to the closure of thousands of small and medium industries. Millions and millions of people became unemployed.

The promise of two crore new jobs remained a day dream. Lakhs and lakhs of people migrated back to villages. It made the village life which is already distressed due to agrarian crisis more complex.

Hasty implementation of GST also contributed to the mess. Peasant suicides, workers agony, rising prices, fall of the exchange value of rupee, together began to haunt the electoral dreams of the political planners led by Narendra Modi.

Public sector banks were faced with ever increasing financial crunch mainly due to the heaped up NPAs (Non performing Assets) that only served the greed of few corporates who are the political cousins of the ruling class. Vijaya Mallya, Nirav Modi, Mehul Choksi and the like shook the foundations of Indian banking and coolly flew off to safe destinations.

The black money hoarded in foreign banks was never supposed to come back even though it was a glittering assurance during the 2014 polls. The ruling dispensation was in a hurry to create a feel good atmosphere before the elections. For that they wanted to squeeze the RBI. Their only intention was to take some populist measures as eye wash for the people who bear the brunt of their adventurous and prorich policies.

The inevitable rift that rose out of these conflicting views reached a point of confrontation in course of time. It was openly signalled by Viral Acharya, the deputy governor of RBI, in a public seminar on October 26 in Delhi. The autonomy of Reserve Bank was in question.

Deputy Governor exclaimed that India will become another Argentina if autonomy is undermined. Political commentators opined that the deputy governor was echoing the voice of the governor himself. The battle cry had already begun! The issues they raised in that battle including the role of people like S Gurumurthy of Swadeshi Jagran Manch and Sangh Parivar economist Satheesh Marathe., the interest rate and control over banks. In the background of alarming growth of NPA, RBI intended to implement prompt corrective action (PCA) on banks.

The government feared that it will adversely affect their promise of liberal loans for the Micro, Small and Medium Enterprises (MSME). The Government moved demanding a share from the reserved capital of the Reserve Bank of India and Intention of the government was to swim out of the crisis using this fund while RBI’s concern was that it will affect the financial stability of the central bank itself. The government wanted the NBFCs to provide greater space for activities. This suggestion was not agreeable to RBI. RBI pointed out the example of the Infrastructure Leasing and Financial Services company (IL&FS) which faces serious financial crises. The Government proposal for the refinancing of mutual funds was also opposed by RBI.

While the government had a liberal approach on enhancing the limit of corporate bonds for foreign public investors, the RBI could not agree with it. As a part of the attempt to tame the RBI, government mooted the idea of creating payment regulatory authority. Naturally RBI took it as a move to undermine its authority.

Seeing the mood of resistance from the RBI on such issues government even thought of applying section 7 of the RBI act. (This section allows government to intervene in RBI matters). Never before, the country had faced such a situation. It happened only in the ‘achhe din’ rule of Narendra Modi. A government, led by a prime minister who believes only in thundering speeches, was ignoring every principle of financial discipline and economic management.

The result is that chaos and confusion engulfed the financial sector of the country and its socio political life. Narendra Modi’s attempt was to escape from this deep crisis making RBI a scapegoat. Their only concern was to pull on the system somehow till the elections. (IPA Service)