Urjit Patel vs Government: What Really Went Wrong

Money Matters

Urjit Patel vs Government: What Really Went Wrong

Illustration: Shruti Yatam

To play the role of central banker is to play the voice of reason in the government’s ear. Think Alfred to the government’s Batman… or Rifat Bi to the government’s Kajol. When the government gets all up in arms about a Rahul-Tina love affair, it’s the central bank that talks them down, tells them to drop out of college, and break all ties with the world they know. You know, good old-fashioned reason.

Sadly, for India, the relationship between the Reserve Bank of India and the government has been less BFFs and more “show me the money”. It’s a bit like watching a father deal with a spoilt teenager who has blown away his pocket money and is now asking for an extension on his allowance. The father wearily works hard to earn more money while Sunny drives around in a car with a sticker that reads “Papa’s gift”.

For those unfamiliar with the current standoff, here it is in a nutshell: The RBI has money. The government thinks the RBI has more than it needs and want some of the money. The RBI does not want to share.

This is in no way a new issue. Props to the RBI for standing its ground for years, despite pressures from the current government and governments before it. Former RBI chief – and genuine loss to the male modelling industry forever – Raghuram Rajan was famous for his unflinching approach when it came to policy matters. He had so many stare-downs with the government that now, anytime anyone does anything ballsy in parliament, it is called “pulling a Rajan”. His successor – Urjit Patel – was supposed to be a more pliable sort. However, he seems to have found his inner Rajan and is frequently seen “tugging a Patel” as he fends off government barbs aimed at influencing his policy decisions.

Yes – it’s fun to take pot shots at a government that is used to getting its way all the time and now finds itself against a genuine obstacle.

The question of who is right in this current scenario is not as straightforward as one might assume. Nor is it really the point. Yes – it’s fun to take pot shots at a government that is used to getting its way all the time and now finds itself against a genuine obstacle. But what if Sunny really does need the money for something serious, and Papa is just assuming he’s going to blow it away on coke-shoke?

First, can we even agree that the RBI has too much money? As the philosopher Curtis James Jackson III once said: “There’s never enough dough.” He should know, since he’s nicknamed after a unit of currency. Truth be told – base numbers do suggest that the RBI has more money than it needs when compared with other central banks. The State Bank of India, for instance, not only provided me with my home loan, but also funded a significant number of Vijay Mallya’s parties. That the liquor baron didn’t have one of his yachts named “Surprisingly SBI”, is the only real reason they’re after him to pay them back.

With mounting non-performing assets, the banking system is looking increasingly like a Nirav Modi edition game of Jenga in its final stages. It falls on the RBI to ensure it has excess money to keep the system afloat in the event of a major meltdown. You can’t blame them for being cagey with their money. However, considering a lot of these banking shenanigans are happening under their watch, it begs the question of why they have allowed things to go so far (#TugHarderUrjit!)

The other thing to ask is whether the government really needs money. One might argue that bringing more fiscal spending into what is allegedly the fastest growing economy in the world would be overkill. One might make this argument while dexterously navigating potholes on the way to work, while also wondering why they don’t spend more money on fixing our roads.

Sadly, for India, the relationship between the Reserve Bank of India and the government has been less BFFs and more “show me the money”.

India will always need money, but too much liquidity can cause inflation, which would only mean another Papa-Sunny feud down the line as the government pressures the RBI to raise interest rates to control the said inflation.

The issue may also be less about injecting money into the system and more about where the money is spent. Since India embarked on the largest scale version of the game “Statue” the world has ever seen, scepticism for the government’s sense of fiscal responsibility does seem warranted. God forbid the next statue they make is of Amit Shah, where the consumption of bronze would be astronomical as against a comparatively petite Sardar Patel.

Ultimately, the call on where, if and when the RBI will use its money is fairly moot. With all its pulling and tugging, our central bank houses some of the smartest economic minds – even if their currency design skills are somewhat lacking. It is likely they will relent on a few areas: such as propping up the banking system and easing some liquidity to SMEs.

The bigger problem is one of autonomy. It is vital that the RBI be allowed to retain the final say on where it spends its money. Putting both monetary and fiscal policy in complete control of the government – especially with elections looming – is likely to lead to long-term economic disaster.

Keep in mind that when Batman kept ignoring Alfred’s advice, Alfred left. Then Batman lost all his money and got beaten to a pulp. True, he makes a dramatic comeback, saves the city, marries Anne Hathaway… and has a statue made in his honour. I’m going to drop the analogy here and hope to God the government isn’t emulating Batman.