New Delhi: The third institution that is endangered under Narendra Modi’s rule is the Reserve Bank of India, whose autonomy and independence need more champions among ordinary citizens than it is ever able to summon. If the Reserve Bank had been truly autonomous, last November’s disastrous demonetization programme would have been doughtily and definitively opposed than not. Although an economist with all the right qualifications, the present Reserve Bank Governor, Urjit Patel, lacks those leadership qualities which can make the RBI an effective instrument of monetary policy-making and also safeguard its independence. Economists who have regular dealings with the Central bank rue the absence of Raghuram Rajan who had brought the RBI to world eminence as an outstanding institution devoted to the preservation of global economic equilibrium. Even Rajan’s predecessor, Duvvuri Subbarao, scarcely a comparable rockstar, brought weight to his office. Urjit Patel’s striking and catastrophic weakness is that he almost never speaks in public, and when he rarely does, his speeches are clunky and laden with off-putting jargon. Whether Narendra Modi chose Patel partly because he was the opposite of Rajan in being obsessively self-effacing and publicity shy would never be known. But the Reserve Bank and the country as a whole have been nett losers with the appointment of a governor who prefers silence even in crisis situations.

When the demonetization crisis was raging, the most public and irritating face of that insane policy, besides of course Modi and Arun Jaitley, was the just-retired Economic Affairs Secretary, Shaktikanta Das. Not a day passed when this twopenny-halfpenny bureaucrat was not tweeting some new note ban rule adding to the gratuitous agony of common citizens. The Reserve Bank was absconding from this mad and vastly injurious spectacle. After public criticism (including by this writer), Urjit Patel mumbled some ritual statement of support to demonetization and hastily returned to stony silence. He had enough economic sense to know the scheme was a horror from the moment it was implemented, and that a Prime Minister with no economic training was putting the country to great and incalculable risk. Still, he chose not to protest. Did Patel covet the governorship of Reserve Bank so excessively to shut his eyes to future peril? The numbers are out now. There is no place to hide for those who initiated and rabidly supported the note ban. Urjit Patel cannot shrug off responsibility for its ghastly consequences.

However, this tragedy is not about individuals. Every player in this sorry and irredeemable mess called demonetization has to answer to history. History will be pitiless. This writer’s greater concern is in regard to the institution of the Reserve Bank, just as his previous concerns in this series attached to the higher judiciary and to the Indian Army. India is not a metaphoric island state. No nation is. Donald Trump thinks isolating America from the Paris climate accord will make it strong. It won’t. It will erode its world leadership, and this will extort an enormous economic price from the United States which will add to the ignominies already heaping on Trump. Whether one desires so or not, one cannot secede from the world. Nation-states have to live with one another and carry on shared and imperfect economic activities. When trade and commerce are inescapable destinies of nations, the world needs institutions that can be trusted. Central banks are among those trusted institutions. At any rate, they are seen as deserving of trust, since they are the sole monetary policy-making institutions of sovereign nations led by highly qualified and peer valued economists.

Among the more recent Indian Prime Ministers, two are exceptional for respecting the independence, wisdom and judgement of Reserve Bank governors. These are A. B. Vajpayee and Manmohan Singh. Despite the pressure mounted on Manmohan Singh to not grant an extension to Duvvuri Subbarao, he did precisely that. As a former Reserve Bank governor himself, he recognized the critical significance of the post. Raghuram Rajan was also Manmohan Singh’s choice, and he chose splendidly. Just because Urjit Patel was appointed by a successor government, it did not make him contemptible in Manmohan Singh’s eyes, who shielded the governor during an aggressive parliamentary committee hearing. Manmohan Singh knew what he was doing. He felt duty-bound to overcome political partisanship to support Patel because he represented a great and honoured institution. Narendra Modi, unfortunately, has not been as generous, sensitive or broadminded about the Reserve Bank as an institution. His differences with Raghuram Rajan led him to erode the autonomy and independence of the Reserve Bank. If the Prime Minister had not been so convinced about his omniscience, he would have offered the Reserve Bank of Raghuram Rajan a fair and just chance to present an economic case against demonetization, and saved the country at least some of the unpleasantness of a downturn. But being overweeningly arrogant and boundlessly self-willed, Modi let Rajan go, the selfsame Reserve Bank governor who had single-handedly and single-mindedly put a check on inflation and stabilized the rupee, and replaced him with a polar opposite, who has shown no great will to stand up to the government.

To be continued....

Read “Rating the PM - 1,” “2,” “3,” “4,” “5,” “6,” “7,” “8” and “9” here , here, here, here, here, here, here, here and here.