Urjit Patel resigns after months of government pressure

Vastavam web: The Governor of the Reserve Bank of India, Urjit Patel, resigned suddenly on Monday, following months of pressure from Prime Minister Narendra Modi’s government that is threatening the independence of the central bank, sending the rupee tumbling. Government officials have been complaining in the past few months that the central bank should allow lenders to make loans more easily, and want the RBI to hand over some of its surplus reserves to help fund the fiscal deficit.

Getting control of the reserves would give the government more flexibility in spending on welfare policies and farm support schemes. The departure of Patel, who cited “personal reasons” for his decision to resign immediately, comes at a particularly sensitive time for the government and financial markets. Investors will want to know who is Patel’s replacement and how that will affect the direction of financial and monetary policy, analysts said. There was no clear frontrunner, but one of the names being speculated was former Finance Secretary Hasmukh Adhia who retired at the end of November.

“Markets certainly will be concerned unless there is further clarification that comes through tonight,” said R. Sivakumar, head of fixed income at Axis Mutual Fund. “I think tomorrow and over the next few days we can expect heightened volatility in the markets.” That added to earlier losses caused largely by concerns – triggered by the state exit polls – that next year’s election might end with a defeat for the pro-business Modi and a weak coalition government, leading to policy uncertainty.