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(This story was first published on 9 November, 2018. It has been republished from The Quint's archives in light of RBI Governor Urjit Patel's resignation on Monday, 10 December.)
As a Bollywood narrator would say, in dono stories main Modi hai, Patel hai, RSS hai, aur cash bhi hai! But there is a tiny difference between the two, and that is the letter ‘t’. You see, one was about a Statue, the other about a Statute.
Prime Minister Modi helmed and orchestrated both the stories. In the first one, he redeemed his 6-year-old pledge to build the world’s tallest statue on river Narmada – a 182-metre salute to Sardar Patel, an icon of India’s independence movement. In the second but bigger story, Modi threatened the Reserve Bank of India (RBI) with a surgical strike.
Both stories pivoted on Patels; the Sardar in one, a Guv’nor in the other.
The Sardar had a beef with the RSS in the first story. He was wary about its religious and cultural nationalism. He had banned it after Mahatma Gandhi’s assassination.
In the second story, Guv’nor Patel had a beef with the RSS’s primitive economics, articulated with such panache by its aggressive ideologue, S Gurumurthy: “Raghuram Rajan destroyed the RBI’s independence by making it subservient to global thought; RBI has lost its capacity to think for India”.
Unfortunately, this was no longer the rant of an outsider. Gurumurthy was para-dropped into RBI’s board shortly thereafter, and a much-respected commercial banker was rudely sacked.
Guv’nor Patel, like the Sardar 70 years ago, now had to battle a Hindutva (economic policy) insurgency in his front yard.
Then there was a cash overhang – a big cash overhang – across both the stories. One needed Rs 3,000 cr to melt, mould and erect 95,000 tonnes of construction material. In the other, an electorally spendthrift Modi government was eyeing the Rs 3 lakh cr of surpluses built over decades of prudent profitability. It wanted the RBI to gift it a windfall equal to two percent of GDP, damn the weakened balance sheet.
Argentina’s plight, after it had denuded its central bank’s reserves by nearly $7 bn, was ignored. Warnings by renowned economists to keep a strong RBI cushion against India’s chronic current account deficits fell on deaf ears. The cash hoard that had eluded Modi in demonetisation was sought to be compensated by raiding its own central bank.
The Difference of a Little ‘T’
But now see the difference that an innocent little ‘t’ can make! The Statue, even if extravagant, is still a force for the good. But the Statute is a constitutional nuclear button, which the founding fathers had inserted under India’s ‘no first use’ doctrine. It’s meant as a deterrent, hopefully never to be deployed, except in the rarest of rare emergencies.
Remember, Section 7 of the RBI Act allows the government to force consultations; okay, so far so good. But the scary part is that it also enables the government to direct RBI to do its bidding. Poof!
It’s such a malignant provision that it’s never been used by any government, not even during famines (1965) or wars (1965 and 1971) or near bankruptcy (1991) or global recession (2008).
Because Section7’s casual or frequent invocation can demolish the most cherished principle of economic governance – a central bank which independently makes monetary policy for the long-term interests of the nation, without surrendering to the short term whims of a government looking to inject a temporary, and false, feel-good factor among people.
And certainly not just a few months before tough elections, perhaps as one more tool to neutralise an anti-incumbency sentiment.
No sir, this is not on!
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