Avinash M Tripathi
In my last article for the Moneycontrol, I wrote the following about the Reserve Bank of India (RBI) and the government’s relationship: “As the current level of stress in the relationship suggests, the autonomy that is based on norms and conventions is fragile; it may break down in the times of turbulence, precisely when it is needed the most.” Little did I realise that the ‘times of turbulence’ will arrive so fast. Since then, RBI governor Urjit Patel stepped down and Shaktikanta Das has been appointed the new Governor of the central bank.
The decision to step down is the culmination of a number of other worrying developments. In their seminal work on the central bank independence, Alex Cukierman and his co-authors found that the simplest proxy for central bank’s operational autonomy is the central bank governor’s turnover rate.
A longer tenure of the governor, which implies lower turnover rate, is associated with the greater autonomy which in turn predicts reduced inflation. The tenure of the last two governors, Raghuram Rajan and Urjit Patel, was effectively three years and two-and-a-half years respectively, which is significantly shorter than their global peers and immediate predecessors.