Diary of an unusual year: Urjit Patel’s continued silence on demonetisation

When Urjit Patel was elevated to the post of Governor of the Reserve Bank of India (RBI) a year ago, among the qualities that recommended him were his orthodoxy, technical competence and evident indifference to the limelight. He trained in macroeconomics at highbrow campuses, picking up BSc, MPhil and PhD degrees from the London School of Economics, University of Oxford, and Yale University, respectively. His expertise on India goes back to the 1991 reforms that he had, as the International Monetary Fund’s deputy resident representative in New Delhi, monitored up close.

An impressive CV

A deputy governor of the RBI since 2013, he was disposed well towards maximum convergence with Delhi. Those acquainted with Mr. Patel’s economic philosophy were somewhat surprised at the choice, for he has never once throughout his career demonstrated an inclination for adventurism, and enjoys a reputation for conservatism. He is a firm believer in institutional checks that force governments — even the myopic and opportunistic regimes — to pick economically sound policies over those influenced by electoral calculations.


On out-of-turn interest rate cuts and other wild expectations, it was thought he’d be no more likely to yield to Delhi than his high-profile predecessor, Raghuram Rajan, was. A lot of his time in the RBI had been spent reshaping and retooling monetary policy, to insulate it from precisely such pressures. The manner of Mr. Rajan’s exit from the RBI, after a high-pitch campaign questioning his integrity, suggested the replacement would be someone pliable, a trait Mr. Patel did not seem to possess.

Living up to expectations, he has not toed Delhi’s line on interest rates. On the rare occasion, he has spoken plainly, coldly and publicly to powerful politicians, advising against an ill-informed policy: his denouncement of loan waivers came barely hours after Uttar Pradesh Chief Minister Yogi Adityanath announced he was going ahead with his party’s poll promise to farmers. But the first year of this governorship is an unusual one, and cannot be judged on the usual metrics. Demonetisation puts Mr. Patel into sharp focus.

Mr. Rajan had established his voice as one that could be relied upon to tell us if something was amiss. He would let us know what the situation was, and what it ought to be — for instance, he got bank books combed for hidden bad loans that would have otherwise gone undetected. Mr. Patel has kept his public utterances to the minimum. We don’t know whether he too saw demonetisation as an ineffective policy tool for controlling black money and corruption, if he too found it unkind and unjust to the honest and vulnerable, and if it was bound to inflict undue economic hardships on people. In this, Mr. Patel's silence is puzzling. Demonetisation does appear to be just the sort of policy tool he tends to be disapproving of.

The power to say ‘no’ to government over demonetisation may not be available to the RBI, as it is bound legally to manage currency. But did the Governor try to buy time to arrange some supplies of the new notes? It is unclear what the RBI’s role in demonetisation was: of a bystander or a participant. All information related to demonetisation is being withheld on grounds of national security. The government has blocked all queries related to demonetisation, including from the press, RTIs and parliamentary committees. Initially, the RBI had been transparent. Details of banned notes tendered were published daily at the end of the day on its website. It even gave a few replies to RTIs. But opacity soon set in; and now it continues to adhere to the gag orders from Delhi.

The window for turning in the demonetised notes closed on December 30. Months later, the central bank is still not done counting, and is unable to say how many were turned in. Not only is the delay tardy, it is holding up evidence-based assessment of the extent of success or failure of the note ban. Without the data, how much black money was extinguished, if any at all, cannot be estimated.

Stuck with the blame

Trouble is, with the RBI taking full blame for demonetisation’s messy execution and the missing numbers, its public standing has suffered. Mr. Patel’s own reputation too has taken a beating; even senior parliamentarians can’t resist making fun of the Governor publicly. Meanwhile, the ruling Bharatiya Janata Party has picked rich electoral dividends on the issue of demonetisation, riding on its putative successes in penalising the corrupt. The rise in political popularity has come alongside an erosion in institutional credibility. It must be asked: if the idea of demonetisation originated in government, then why is the RBI getting the flak for it?

This is the context in which Mr. Patel’s continuing silence has put the RBI, one of India’s most respected institutions, at the centre of a political issue.

Puja Mehra is a Delhi-based journalist

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Printable version | Aug 1, 2021 12:56:21 PM |

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