The RBI-government turf war that turned into an ugly public fight with threats of Section 7 being invoked has caught global attention. The International Monetary Fund (IMF) has warned the government against interfering with the central bank's functions. The IMF said it was monitoring the developments closely.
The words of IMF Director of Communications Gerry Rice would, perhaps, resonate well with the thinking of most multilateral institutions, not just IMF, on this issue. “International best practice is that there should be no government or industry interference that compromises the independence of the central bank and financial supervisor,” Rice said.
One issue that probably could have taken the Reserve Bank of India (RBI)-government friction to a boiling point could be the abrupt removal of Nachiket Mor in September, one of the most articulate voices on RBI’s central board.
An RBI official confirmed to this writer that Mor has been discontinued from the central board. When asked whether reports of his sacking are true, the official said, “I’m sorry. I will not be able to offer any response to your question.”
Mor's name, however, appears on the RBI website as a member of the eastern region local board.
Nachiket Mor’s removal from the RBI board in September was a bit of a surprise because he had then finished just a year of his second four-year term. The central government had re-appointed Mor on 24 August 2017 for a period of four years.
Mor was a favourite of former governor Raghuram Rajan who wanted to use his expertise in rural banking and was first appointed to the RBI board in May 2013 to bring in expertise on rural finance.
Before coming to the RBI, Mor had a long stint as a banker with ICICI Bank and is considered an authority on rural banking and, hence was given charge of certain important RBI committees on financial inclusion, as Rajan’s go-to man on issues of financial inclusion.
What went wrong for Mor to be sacked so soon after his reappointment? According to people in the know, Mor was a forceful voice on the RBI board but had, of late, fallen on the wrong side of the government nominees and bureaucrats on multiple issues. The relationship turned bitter. One important point of contention could be displeasure from certain right-wing organisations about Mor’s continuation on the RBI board while simultaneously associated with the Bill and Melinda Gates Foundation (BMGF) as its director.
In April this year, RSS-affiliated Swadeshi Jagran Manch (SJM) had written to Prime Minister Narendra Modi demanding Mor’s removal from the RBI board on the grounds of conflict of interest. Interestingly, S Gurumurthy, who is associated with the RSS and the Swadeshi Jagran Manch, is also on the board of the RBI. It is not clear whether the reason to sack Mor is triggered by the SJM letter to the Prime Minister.
Did Mor’s abrupt ouster irk the top brass at RBI who felt it was an unfair interference on the part of the government? Remember, the RBI’s board had come under heavy criticism during the demonetisation episode when the central bank had to remain a passive spectator from day one. Governor Urjit Patel, too, had come under heavy criticism for not guarding the central bank’s voice throughout demonetisation despite being the authority on currency management.
Since then the RBI under Patel has been making vigorous attempts to regain the lost glory of the central bank by openly refuting several demands from the government, including a request from Finance Ministry to meet Monetary Policy Committee (MPC) members ahead of policy announcement at one point, publishing a dissent paper on the move to take away control of payment systems from the central bank, and warning that government that intend to raid RBI’s reserves and not respect its autonomy will invite “potentially catastrophic” results from markets.
Since the days of demonetisation, the central bank has greatly succeeded in regaining its voice. The removal of a board member half-way through his tenure is a rare incident in the RBI and would certainly have not gone down well with the central bank's top brass, leading to a public spat and initiating a fresh round of debates on its autonomy.
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Updated Date: Nov 02, 2018 15:02:22 IST