RBI Governor’s exit

Srinagar, Publish Date: Dec 11 2018 10:39PM | Updated Date: Dec 11 2018 10:39PM
RBI Governor’s exitFile Photo

The surprise resignation of the RBI Governor Urjit Patel on Monday evening has come as a big blow to the Indian economy. Markets went into a panic mode on Tuesday morning with Bombay Stock Exchange shedding  500 points and the Nifty falling below 10400 – albeit the poll outcome in the five states was also a factor in the market performance. However, more than the market reaction which could be temporary, the Patel’s resignation has raised fears about the BJP’s ability to tackle many headwinds being  currently faced by the economy on global and domestic fronts. And the choppy performance of the stock market since September makes it more than clear. The collapse of the systemically critical shadow lender IL&FS triggered a liquidity crisis among the Non-Banking Finance Companies which has since lingered. This, in turn, has hampered the credit growth and slowed the economy. In recent years, the NBFCs have emerged as the biggest lenders to the infrastructure and housing sectors. In fact, the IL&FS was also financing the Rs 6809 Zojila tunnel connecting Ladakh with the Valley. And with the big-time infrastructure lender going bust, there is now a big question mark over the project. An independent RBI is critical for the management of the economy, much more so when it is faced with multiple daunting challenges. But the exit of Patel just when India needed him direly to steer the economy and markets out of the current turmoil reveals a sorry state of affairs.  More so, when Patel’s resignation is the likely result of his long-running feud with the government  which reportedly was seeking a portion of RBI reserves to infuse liquidity into the economy to kickstart the stalled consumption.  However, more than the Patel’s exit, the issue has once again come down to the credibility of India’s institutions under a BJP-led centre.  Already, the functioning of the institutions like Supreme Court, CBI, Censor Board, universities etc has been a matter of great public concern. The state has been accused of directly or indirectly influencing their operation. This, in turn, has threatened to undermine the public faith in the system and the rule of law, something no government can afford to allow to happen under its watch. This is especially true for the RBI. The government’s interference in its working will never go down well with the economy and markets. Patel’s resignation thus should be a wake-up call for the central government. It should act promptly and not only adopt a hands-off approach towards RBI but immediately appoint an able new governor who is not perceived a yes-man.

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