A low key, career central banker Michael D Patra has replaced an outspoken rebel, Viral Acharya, at the Indian central bank as one of the four deputies to governor Shaktikanta Das. Patra, already a member of the powerful six-member monetary policy committee (MPC) which sets the interest rates, will likely take over the charge of monetary policy at RBI for the next three years.
To begin with, it took a good six months for the government to finalise a replacement for Acharya, who along with former governor Urjit Patel, stood up to the government on a range of issues, but mainly for the functional autonomy of RBI.
The outsiders
At one point, the central bank seemed keen to open its doors to outsiders to bring in professional expertise from the private sector. But in the recent past, the experiment proved costly to the government. Acharya was an outsider, so was Patel, and his illustrious predecessor Raghuram Rajan, who, in 2005, rightly predicted the onset of a global financial meltdown that arrived just a few years later.
All three were academics or economists working with private organizations abroad. But their stints proved to be troublesome for the government, with the trio often raising contentious issues in public pertaining to RBI’s autonomy, transfer of central bank’s reserves to the government, dual regulation of public sector banks (by both the government and RBI), among other things.
Rajan era
Rajan often ventured into matters that went far beyond his mandate; he opined and even offered a caution to the government on issues ranging from RBI autonomy to ‘intolerance’ debate. Rajan’s convocation lectures often took the shape of heavy, covert criticism on government policies. Government’s flagship schemes were questioned, including the 'Make in India' scheme of Modi government.
The pace of rollout of Jan Dhan Yojana accounts was questioned too, raising eyebrows of many in Delhi’s power corridors. Rajan seemed to relish donning two hats, one of the RBI governor and the other of an outspoken academic and social reformer
Getting someone who would just do what he was told, presumably, was the expectation when Urjit Patel was elevated as governor following the exit of Rajan. Patel was a quiet, cautious banker who the government probably thought wouldn't give headaches to Delhi after the ordeal with Rajan.
But, they were wrong.
Patel/ Acharya rebellion
Patel remained silent for the most part of his stint as RBI governor, including during the 2016 demonetization exercise when the RBI was reduced to a silent spectator, but soon frictions emerged towards the early part of 2018 when relations turned sour between him and the government.
Gloves came off when Acharya, who till then confined his public engagements to his routine subjects on monetary policy, made a controversial speech on 26 October 2018 at the A. D. Shroff Memorial Lecture in Mumbai. At the lecture--On the Importance of Independent Regulatory Institutions – The Case of the Central Bank—Acharya picked up a major quarrel with the government on the subject.
"Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution," Acharya said. Acharya’s warning shots were hard to miss the targets in Delhi.
Top bureaucrats and political leadership in Delhi’s power corridors responded to the central bank’s distress call and the issue got escalated in no time. The Government was quick to pick up the gauntlet that Acharya had flung in its direction. It reportedly threatened to invoke a controversial section of the RBI Act that enabled the government to supersede RBI’s decisions by way of directives on matters it deemed important.
Things worsened to a point that Patel submitted his resignation just two months later, citing personal reasons even when his contract was to run till September 2019. But the real reasons for his resignation were clear to all. Shaktikanta Das replaced Patel. Acharya resigned in June 2019, six months ahead of the expiry of his term. Probably, the past weighed in when the selection committee sat down to finalise someone to fill in the shoes of Acharya.
Importance of an insider at Mint Street
Patra, in that sense, is an apt choice. At a time when it is grappling with a slowing economy, the government was treading on eggshells when it went about looking for Das’ deputy in charge of monetary policy. A wrong choice could have added to its woes. That’s where Patra fits in. An RBI insider for the most part of his career (except during the deputation in IMF between 2008-2012), Para is known as a brilliant monetary policy, inflation expert and someone who can be relied on to keep his head down and do his job. His stint in IMF and expertise of several years in managing monetary policy through tough phases is an advantage for the central bank. Especially, after a difficult phase in its relations with the RBI, the NDA-government probably wants a ‘friendly’ RBI’s top brass to work with.
With Shaktikanta Das at the helm and his deputy in charge of monetary policy a low profile, career technocrat, the government has ensured that the RBI-government relations do not hog the headline space for any wrong reasons. “Patra’s relations with the government were always good. He never gets into any kind of controversial statements,” said a senior RBI official who requested not be to identified. “In terms of subject knowledge and understanding, he is brilliant,” the official added. For the government, in the middle of a challenging economic scenario, that description sounds precisely like the right fit.
