After two years at RBI, Urjit Patel’s silence is more eloquent now than ever before on central bank's independence

On Tuesday (tomorrow), Urjit Patel will complete two years in office as the Reserve Bank of India (RBI) governor. If you look at the big highlights of Patel’s career as the central bank chief so far, three subjects come up on the list, viz.: 1) Patel’s subdued role during Narendra Modi-government’s big-ticket economic move demonetisation 2) his role in shaping up the retail-prices focused inflation fight, and 3) his tricky equations with the government on certain issues, mainly with respect to the governance of public sector banks (PSBs). Each of these three carry great significance not just to Patel but at a larger level for the economy and the banking sector as well.

New RBI governors often see something big, really big happening in the immediate days after they take over charge. For D Subbarao, it was the global financial crisis. Within days after he took over are governor, Lehman Brothers filed for bankruptcy and all hell broke loose across financial markets. For Raghuram Rajan, it was the US Fed shocks and a freefalling rupee and for Patel, it was the demonetistaion challenge thrown by the Narendra Modi government.

The demonetisation of Rs 500, Rs 1,000 currency notes on 16 November 2016 was a political decision. Patel and his team at the RBI had very little to do with its launch but everything as far as the implementation was concerned. The note ban aftershocks on the liquidity situation were huge across the country. RBI, under Patel, appeared clueless about how to handle the remonetisation process in the initial phase. With 86 percent of the currency scrapped overnight, the RBI had to undertake a Himalayan task with limited resources.

Public distress was on the rise day by day forcing the RBI to introduce, roll back and again introduce a number of circulars regarding banned cash deposits, new currency withdrawals and so on. It took 5-6 months for the central bank to manage the situation.

Patel drew a lot of flak for the slow counting of old notes. When he appeared before a Parliamentary panel to explain the delay, Patel was ridiculed and criticised. He became the subject of social media jokes. That went on till last week when RBI, after two years of demonetisation, finally completed the task admitting that 99.3 percent of the total demonetised currency has come back.

It didn’t make sense to bay for Patel’s blood. He was an extra in the PM Modi show on demonetisation. In hindsight, this was also part of Modi government’s plan to gradually deconstruct the image of the central bank post the ‘rockstar’ Raghuram Rajan-era.

It won’t be an exaggeration to say that Patel is the architect of India’s new retail price-focused inflation-targeting monetary policy infrastructure. It was a panel headed by Patel which gave shape to the CPI-inflation based policy and the formation of Monetary Policy Committee (MPC) structure. Monetary policy, which used to be a one-man show of the RBI governor till then became a team play, with the governor being only one member of the panel. The MPCs unrelenting focus on inflation target and its conservative stance on rate hikes/cuts worked well to bring inflation under control, although the fight is far from over even now.

Patel has never been a darling of the media unlike his predecessor Raghuram Rajan, but more like a technocrat who kept his head down and worked hard. That was exactly what the Modi government wanted too and didn’t find that in the outspoken Rajan.

However, Patel too had his clashes with the government on issues that mattered much, such as the issue of dual regulation of state-run banks and government’s relation with the MPC.

In 2017, Patel and his colleagues at the MPC showed the courage to say no to the finance ministry that sought a meeting prior to the monetary policy. Patel also made a public pitch for more powers for the central bank in the regulation of state-run banks. The government retorted saying there are already enough powers with RBI to regulate PSBs and the debate is still on.

Patel has never been a good communicator but chose to let his actions speak instead. Except in the demonetisation episode, Patel cultivated an image that built his persona as a lone warrior who fought to safeguard the independence of the RBI and brought in the much-needed structural changes in the way India looked at monetary policy. After two years at the RBI, Urjit Patel is no longer a shadow of the Modi-government. His silence is more eloquent now than ever before.