Prime Minister Narendra Modi has issued a statement on RBI Governor Urjit Patel's resignation, tweeting the following:
In his statement, Patel, who succeeded Raghuram Rajan as the head of India's central bank in September 2016, has cited personal reasons for his departure effective immediately.
As can be seen above, the statement makes no mention of the standoff with the government that had been written and talked about copiously over the last few months.
Despite the standoff, the resignation of the RBI Governor comes as a surprise as he had just last week chaired the bi-monthly meeting of the RBI's Monetary Policy Committee (MPC) which decided to not change the key Repo rate, though he alluded to there being scope to cut the rate in the months to come once data, especially in the light of fluctuating fuel prices, settles. During the press conference following the MPC, Patel had refused to answer questions about the standoff with the government, specifically over the use of Section 7 of the RBI act that allows the government to issue directions to the RBI.
The standoff between the RBI and the government burst into the public sphere following a tempestuous speech by RBI Deputy Governor Viral Acharya. In his speech titled 'On the Importance of Independent Regulatory Institutions – The Case of the Central Bank', Acharya had gone into great detail about the means and consequences of "undermining the independence of the central bank", concluding thusly:
"As many parts of the world today await greater government respect for central bank independence, independent central bankers will remain undeterred. Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans."
Patel's speech brought a sharp reaction from the Finance Ministry. Even weeks after it, following a marathon meeting of the RBI's board, Economic Affairs Secretary Subhash Chandra Garg had said in a TV interview that he didn't know what prompted it. Speaking to Republic TV's Editor-in-Chief Arnab Goswami in a primetime edition of Nation Wants To Know, Finance Minister Arun Jaitley had refused to publicly respond to Acharya's speech. Apart from not broaching the topic during the aforementioned policy review, Patel too hadn't addressed the matter (Acharya's speech) publicly.
At the marathon board meeting of the RBI, which was held on November 18, a number of matters had been discussed, including the following three that have been spoken about most:
Ahead of the meeting, there had been constant speculation that Patel may resign (regularly spoken of by former Finance Minister P Chidambaram who said that the consequences could be catastrophic), though that turned out to not be the case as it appeared that compromises were made and action items for each of the topics mentioned above being detailed.
Urjit Patel was also scheduled to reply to a parliamentary panel that had summoned him for his views on Demonetisation, the ongoing standoff with the government and on other matters. Patel has appeared on November 28 and was said to be scheduled to submit a written response within 15 days.