By Binoy Viswam
Political crisis will have a prelude
in any country in the form of economic crisis. This fact is underscored by the
political and economic developments in India too. The fuming crisis in the
economy, was recently manifested by the resignation of Urjit Patel, the
governor of Reserve Bank of India. Even though it was announced on ‘personal
grounds’, everyone knows that it was not personal.
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)
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