Centre, RBI Guv truce prospect nosedives: Sources

While there appeared to be a partial truce last week when the government said it respected the autonomy of the Reserve Bank of India (RBI), the sources said the government will turn up the heat at the bank’s central board of directors meeting on Nov. 19.

And RBI Governor Urjit Patel will be a key focus of the pressure from a group of directors who support the government’s position, according to the New Delhi-based sources, who declined to be named due to the sensitivity of the matter.

“We want the RBI governor to accept the priorities of the economy and to discuss these with board members,” said one of the sources, a senior government official with direct knowledge of deliberations. “If he wants to take decisions unilaterally, it will be better for him to quit.”

Investors and traders warn that if Patel quits it will create uncertainty and undermine India’s already-weak financial markets. They have been hurt in recent weeks because of defaults by a major financing company.

A Finance Ministry spokesman declined to comment for this story. The online financial publication Moneylife reported on Wednesday that Patel could resign at the central bank’s next board meeting on Nov. 19, citing sources in touch with the governor.

Moneylife said Patel was tired of the struggle with the government, and it was having a negative impact on his health. The RBI did not respond to requests for comment for this article or in response to the Moneylife report.

NR Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a New Delhi-based think tank, partly funded by the finance ministry, said the RBI and the government were dealing with the same problem though there was a difference of opinion on how to solve it.

“While the government is looking for short-term solutions, the RBI is focused on long-term solutions,” he said, adding that despite disagreements, both could resolve their differences. “If the RBI governor is forced to resign, it will be a huge setback for the economy.”