Urjit Patel’s tenure will be remembered for his fight with the Government but his squeeze on liquidity will remain a legacy

Urjit Patel’s final act as Reserve Bank of India Governor was to write the template of a terse yet seemingly grateful resignation letter. Such a letter should be remembered by all professional employees when drafting their letters. Now that has been done, Patel will retire to a life as a tenured professor in some noteworthy Indian or Western University, get a book deal that should keep him comfortable in old age and likely become a speaker at major summits. Of course, being a man of integrity that he has portrayed himself one expects that he will impose a cool-down period before he starts narrating the sequence of events that led to the collapse of his relationship with Narendra Modi and Arun Jaitley.

However, what must not be forgotten is the fact that under Urjit Patel the Reserve Bank of India became more insular and reticent. Its actions curbing liquidity which was forced upon it by the precarious state of Indian public sector banks went a tad too far and shut off the tap crushing the small and medium sector enterprises in India and companies were forced to literally beg for working capital requirements. The appointment of S Gurumurthy to the Board of the Reserve Bank was seen by many as the final nail in the coffin for Patel but the fact is that most Central Banks across the world operate under a board process. And even though some of Gurumurthy’s ideas and philosophies are questionable, the Board would have been able to keep him in check. What really did Patel in was the push by Modi and Jaitley to release more liquidity into the market, and while any Government would appreciate more liquidity ahead of an election they did have a point that the Reserve Bank was being unduly conservative in holding heavy reserves. In the aftermath of demonetisation and a confused Goods and Services Tax, the liquidity crunch has made life extremely tough, evident in company results over the past few quarters with demand collapsing in some industries.

And while Patel’s future is sorted, the future of the Reserve Bank of India remains under a cloud. By removing himself from the equation, Patel has given the Government a chance to appoint a man who will serve deep into the next Government’s tenure. By appointing Finance Secretary Shaktikanta Das as Patel’s successor, the Government has opted for continuity andexperience instead of experimenting with somebody untested. The Reserve Bank of India remains one of the country’s key institutions and its future must be protected.