There is nothing that the time doesn’t heal.
Former Reserve Bank of India (RBI) governor, Urjit Patel, who resigned in December 2018 following major differences with the government, is mending fences with the regime to take up a key position in a government-research body.
Beginning June 22, Patel will for a four-year term take over as the Chairperson of the National Institute of Public Finance and Policy (NIPFP), a research body under the control of the ministry of finance.
The institute was set up as an autonomous society, a joint initiative of the ministry of finance, Planning Commission, several state governments and distinguished academicians.
NIPFP's governing body includes three representatives of the finance ministry, one each from the Planning Commission and the Reserve Bank of India and three representatives of sponsoring state governments.
Patel, citing personal reasons, resigned in 2018, with nine months still to go in his term. He was handpicked by the BJP government in September 2016 to succeed Raghuram Rajan as the governor of the RBI.
But towards the end of his term, the differences between the RBI and the government worsened to a point that Patel’s deputy Viral Acharya made a public speech criticising the government’s intervention in central bank's autonomy. The events that followed led to Patel’s resignation.
His abrupt exit didn't come as a surprise to many in the financial markets. There were clear indications of worsening of ties between the central bank and the government over critical issues.
Just two days before he quit, Patel avoided direct questions on RBI's differences with the government during a post-monetary policy presser.
There were multiple differences. One critical issue was the tug-of-war between the two over the government’s demand for a substantial chunk of RBI’s cash reserves.
The central bank was also not happy when the government pitched for dilution of the prompt corrective action (PCA) imposed on 11 state-run banks and pushed for special provisions for MSMEs lending.
Following a meeting of the RBI's board in November of that year, it was clear that Patel had to give in to most of the demands made by the government.
With the government threatening to invoke Section 7, which allowed it to supersede RBI's decisions, the resignation was seen as Patel’s ultimate weapon to register his protest.
One and a half years later after Patel's resignation, relations between the bank and the Centre have changed a lot. Patel’s successor Shaktikanta Das is a consensus man. Most of the differences between the RBI and the government appear to have been sorted out, which includes the issue of RBI capital transfer to the government. There aren’t any public spats between the two in the Das era.
“Without the government’s approval, it is not possible for Patel to take over as the chairman of NIPFP. This body is largely under the control of the MoF. Hence, it is fair to say that Patel has finally made peace with the government,” an economist with a private organisation said on condition of anonymity.