Why it’s important to call Urjit Patel out on the demonetisation disaster
Come Wednesday, November 8, the anniversary of the notorious demonetisation plan or the note ban announcement, the people who will figure the most in print and online media discussions are most likely going to be Prime Minister Narendra Modi, and finance minister Arun Jaitley. This would include abundant references to the ruling Bharatiya Janata Party and the Opposition - leaders critical of them. But Urjit Patel, governor of the Reserve Bank of India, is also likely to remain under the radar amid the din.
Although Patel has held the customary press conferences once every two months to release monetary policy statements, he has kept a low profile, speaking little. The public is largely in the dark about his role in the note-ban exercise: what and how much did he know and when? What are his views on the huge disruption, loss of lives and livelihoods caused by demonetisation?
Early in December 2016, a few foreign media correspondents were kept out of what would have been his most high-profile press conference since the note ban of a month earlier.
In January, during a Vibrant Gujarat Summit meeting, Patel, who has in the past worked for Reliance Industries, fled from the back door to avoid the media.
It was rarely ever thus. All or almost all previous RBI governors have been perennially and prominently in the news during their terms. They have been cerebral individuals. The list of former Indian central bankers is an impressive one containing names that few newspaper readers of their times could have missed. They figured on the business pages on a regular basis and often on the front pages too.
And two of them in the last decade made a splash with a yen for humour and repartee.
D Subbarao, one of the more memorable of recent RBI governors, was constantly in the news during his tenure of exactly five years - September 2008 to September 2013. He was widely quoted for one of his quips. Speaking at the Sixth Annual Statistics Day Conference in July 2012, Subbarao said he used to pay Rs 25 for a haircut 20 years ago, which went up to Rs 50 even as his hair thinned. "Now, when I have virtually no hair left, I pay Rs 150 for a haircut," he said. "I struggle to determine how much of that is inflation, how much is the premium I am paying to the barber for the privilege of cutting the governor's non-existent hair."
More famously, his successor, last RBI governor Raghuram Rajan hogged headlines with his comment when asked in September 2015 about why he had cut the interest rate by 0.5 per cent when actually only half of it was expected and whether he was being Santa Claus:
"I don't know what you want to call me... Santa Claus... you want to call me a hawk, I don't know. I don't go by this. My name is Raghuram Rajan and I do what I do." Incidentally, I do what I do is the title of his recently published book on his experiences as RBI governor.
All this is not meant to extol the role of central bank governors, who are forced to be upholders of a largely right-wing status quo, mostly divorced from concepts such as socio-economic justice. As much as central banks have a role in regulating interest rates and thus exercise an influence on the rate of inflation as well as the interest rates on home purchases and other myriad activities that middle and lower-middle classes engage in, they have a marginal role as far as socio-economic justice is concerned.
And this is one of the reasons, economists and activists on the left - and also those not on the left - have been critical of the European Central Bank (ECB) and the euro. Monetary policy centralisation in the European Union is perceived to have had a negative impact on policy-making by governments sensitive to the concerns of the economically weaker sections of their populations. The draconian ways in which ECB enforces austerity measures to check ostensible risks of fiscal indiscipline by elected governments is deeply resented.
In the real world, central banks and central bankers do not make national economic policy, which is the domain of the finance minister and the prime minister or the president. However, central bankers are required to maintain and display independent thinking. Something that high-profile ones such as Alan Greenspan and Ben Bernanke of the US Federal Reserve, Mervyn King of the Bank of England, Wim Duisenberg and his successors Jean-Claude Trichet and Mario Draghi of the European Central Bank or Jacques de Larosière of the Bank of France did howsoever controversially.
As it happens, President Donald Trump has chosen the next chair of the Federal Reserve (as the US central bank is called) to replace Janet Yellen. He is James Powell, who'd been a member of the Board of Governors of the Fed for five years.
In a succinct article on the online website, Project Syndicate, professor Jeffrey Frankel of Harvard University's Kennedy School of Government, says, "Good central bankers make decisions based on what they believe is best for the economy, relying on evolving data, not on evolving political imperatives."
Incidentally, the website carried another article by an economist of Indian origin, Eswar Prasad, professor of trade policy at the Dyson School of Applied Economics and Management, Cornell University, and a senior fellow at the Brookings Institution, who said:
"The Fed's independence, along with the US's institutionalised system of checks and balances and its adherence to the rule of law, is crucial for sustaining investors' confidence in the dollar. Yet the Trump administration is weakening the checks and balances between the executive and legislative branches of government, and his indifference to the rule of law could pose a direct challenge to the judicial branch. Under these circumstances, any act that undermines the Fed's independence could seriously damage the institutional framework upon which US economic strength rests."
Read RBI for Fed and the advice holds good. Also the Fed and the RBI deserve to be led by bankers made of tough substance, who can stand up to the president and the treasury secretary or the prime minister and finance minister.