In Defence of the RBI Governor

BANKERS, A CLICHÉ goes, lead dull and unimaginative lives. It is safe to extrapolate the claim to central bankers of our age. But if anything, the Governor of the Reserve Bank of India, the otherwise reserved Urjit Patel, appears to be defying this norm. In the past two odd months, he has been subjected to a barrage of vehement and often unfair criticism.

The Governor faced more of it on January 18th when he was summoned to depose before a parliamentary panel on demonetisation. Patel was asked a series of questions—from the level of notes re-injected into the economy since November 8th to the extent of scrapped notes deposited with the central bank. Answers to many of these questions are not yet available, as the RBI is still gathering data on what is arguably a complex exercise.

That, however, has not satisfied the critics among parliamentarians and opponents of demonetisation who want to use any information they can against the Government. To be fair, this is acceptable practice in a democracy. What is not acceptable is dragging the head of an apolitical organisation into a political fistfight, and their failure to make a distinction between economic and political issues. One the face of it, everyone agrees—including opposition members of the panel that quizzed Patel—on upholding the RBI’s autonomy. But their actions—vociferous protests and questioning the motives of the central bank and its Governor—undermine the institution.

On top of this political chicanery, there is the question of muddling the economics and politics of demonetisation. Most economists agree that the withdrawal of high-value notes will reduce India’s growth rate for the next quarter or two. But most are yet to figure out the long-term impact, especially on black money generation when seen along with the move toward greater digitisation of the Indian economy. These questions are distinct from the political reasons and effects of demonetisation. By confusing the two, the opposition hopes to gain some political mileage in a situation where the Government remains popular. Clearly, berating Patel and trying to make demonetisation look like bad economics has not worked so far.

India’s central bank and armed forces are probably the country’s least politicised institutions. They also happen to be among the better functioning ones. To drag the RBI into the political arena is not only unfortunate but also dangerous.

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