After Independence, the government of India had firmly established a tradition of appointing IAS officers or other Central Services officers, particularly from the Ministry of Finance as Governors. This way, it ensured a de facto control of the Bank. Of course there have been a few notable exceptions – like Dr C.Rangarajan who was a former Deputy Governor. Hence all this talk of the Bank’s independence is purely academic and largely a creation of the media to exacerbate the tensions. RBI for its part understands this and is fully reconciled to this reality.
It is the Congress governments that take the cake for running roughshod over the RBI. Many are only keenly aware of the tenuous relationship between P.Chidambaram, the former Finance Minister and Governors of RBI, particularly Dr.Subba Rao.
The current Chairman of the US Federal Reserve, Jerome Powell is also under pressure from the Trump administration. President Trump is on record fighting against the Fed. But the Chairman, given the august traditions of the Fed, has refused to enter into a public fracas. That does not mean he has given in to Trump’s pressure. On the contrary, he has continued with his interest rate regime in a dignified manner, never engaging the President in public.
As expected, the media too has had a role in overhyping the controversy. That the issue has been repeatedly opined upon by known Modi baiters comes as no surprise. Also the timing – a few months before the general election – seems too much of a coincidence. But what is surprising is the amount of support they have generated in the international press.
Viewed in this context, the Deputy Governor’s remarks reflect very poorly on the man. Firstly, the public airing of differences with the government is unprecedented. Secondly the reference to inherent threat to financial markets and hence the overall economy seems outlandish, to say the least. It must be made clear here that the markets will continue with minimal or almost no impact if the Governor and his team are sacked. The markets are dictated by the economic fundamentals and the overall regulatory regime that define the financial and banking infrastructure in India. These are already in place and will be hardly impacted by the individuals. Lastly, the deputy Governor has displayed a complete lack of awareness of the ethos of the magnificent institution he represents. The markets and the executive leadership of banks in India now recognize this.
It is time for the Modi government to act decisively and bring in new blood into the RBI.