Reserved Banker

Posted on: December 18, 2016

Should Urjit Patel earn a rap for not raising the flag on demonetisation and its painful playout? Or is he being made the fall guy for a bungled decision? Sonia Sarkar finds out

Talk about keeping secrets. When Urjit Ravinder Patel travels to Delhi on work, his assistants at the Reserve Bank of India (RBI) headquarters in Mumbai keep three sets of tickets ready for him. This enables him to travel quietly, without anyone getting to know about his plans, an RBI insider says.

If that’s a waste of energy and money, it’s nothing compared to the mayhem that is being played out across the country. And the secrecy about his travel plans is but a tiny dot compared to the blanket of silence that surrounds the government today.

Almost a month after the Narendra Modi government banned 500-rupee and 1,000-rupee notes, people are still waiting for Patel, 53, to reassure them that all would be well. Last week, in his first public remarks after the demonetisation, he said: “The RBI is taking all necessary actions to ease the genuine pain of citizens who are honest and have been hurt.”

On November 8, Patel – in a black suit and a purple tie – told the media that the RBI would be ready with enough new notes to meet the crisis of a nationwide currency crunch caused by the move.

But clearly it isn’t. And fingers are being pointed at the inscrutable man from Kenya who replaced the gregarious Raghuram Rajan this September. Questions are being raised on how involved the RBI had been in the move.

“If the governor had been consulted on demonetisation, then it is unclear why he did not explain to the Prime Minister the enormous disruption withdrawing 86.4 per cent of the currency in circulation would cause to the economy,” says Meera Sanyal, former banker and AAP national executive member.

Patel, indeed, has some explaining to do. As RBI governor, he would have known how many notes the presses could print, and how much time it would take to replace the old notes, Sanyal says. “He would certainly have been aware of problems that would be caused to households, farmers, traders, businesses, schools, hospitals and banks across the country as cash ran out and had to rationed,” she adds.

Speculation is rife. Former RBI deputy governor K.C. Chakrabarty has been quoted as saying that the last government – led by Manmohan Singh – had also discussed demonetisation, but had been advised against the move because the costs were high, the benefits low.

Was the Modi government similarly apprised? “Patel should have told the government that demonetisation was not necessary,” a former RBI governor states. “It was his job to make the government understand that the purpose of nabbing black money hoarders won’t be served by killing notes.”

The number of killed notes is humungous. Over 16.5 billion 500-rupee notes and 6.7 billion 1,000-rupee notes in circulation – amounting to Rs 14 lakh crore – were believed to have been sucked out. So far, reports show that Rs 11 lakh crore have come back to banks, and more may come in. So the government’s belief that Rs 3-4 lakh crore of black money would not be returned to the banks, and thus would the RBI’s gain, may not be accurate.

Yet, how much of all this is Patel’s fault? The jury is out on that, too, though the All India Bank Officers Confederation has asked for his resignation. “The show is entirely managed by the finance ministry and the Prime Minister’s Office. The RBI is only doing a post office’s job,” Chakrabarty says.

Patel may have unwittingly presaged his present predilection. In a 2007 column, he wrote: “Economists feel smug about their insight regarding the merits of an independent (and narrow) central bank. Actually it is politicians who are smart; it helps to have a central bank (designated as independent) that can be blamed for taking away the punch bowl just when the party is getting started, but it can also overrule the central bank and be seen on the side of depositors, who also happen to be voters.”

It’s not easy for a government employee to stand up to the government. But many have done so. The government wanted interest rates to go down but Raghuram Rajan preferred to keep inflation under control instead. Former governor D. Subbarao also didn’t give in to the demand for interest rate cuts during the UPA years. In 1957, a similar issue had forced the then RBI governor, Benegal Rama Rau, to resign after a difference of opinion with finance minister T.T. Krishnamachari.

But Patel, unlike many of his predecessors, has not had much experience in handling political pressures. “Patel could be academically excellent, but he lacks administrative experience in a government office – which is what is needed in a large and complex economy like India’s,” says Chakrabarty.

Indeed, his stints in the government have been short. He was working for the International Monetary Fund (IMF) when he was sent to the RBI on deputation for advising it on the development of the debt market and banking sector reforms in 1996-97. In 2001, he was a member of the drafting team for the RBI’s advisory group on securities market regulations. He was a consultant with the finance ministry from 1998 to 2001.

In 2013, he was appointed RBI’s deputy governor. There was a hitch – having grown up in Nairobi and studied in England and the United States, he didn’t have an Indian passport.

At that point, Prime Minister Manmohan Singh sent a recommendation letter to the home ministry. Patel, Singh said, was “very important for the country”. Some believe Patel had impressed Singh with a paper he had co-written called “The Dynamics of Inflation ‘Herding’: Decoding India’s Inflationary Process”. When the UPA returned to power in 2009, Patel was an expert commentator tracking the first 100 days of the government for a Hindi news channel.

A former Oxford University professor is not as impressed with Patel as Manmohan Singh was. Patel, when he was pursuing an MPhil from Oxford (he later completed his PhD from Yale in the US), did not stand out “socially or intellectually” and did not write any “exceptionally brilliant” papers, says the ex-professor.

“It’s a coterie of economists led by former Planning Commission deputy chairman Montek Singh Ahluwalia, who has a fascination for people who have worked with the IMF and the World Bank, that made Patel’s entry into the RBI possible. Even Rajan has a similar professional background, but he was clearly a distinguished and decorated economist.”

Rajan, in fact, appointed his deputy as the chairman of the RBI’s monetary policy committee, saying that he was confident he would be able to guide the committee to move forward in achieving India’s inflation objectives.

Patel may not have had much experience in governance, but has worked for the private sector. He was the executive director and member of the management committee in Infrastructure Development Finance Company Limited (IDFC) from 1997 to 2006. Reports suggest that it was then that he met Modi, who was the chief minister of Gujarat. Modi offered him the post of independent director and chair of the audit committee on the board of the Gujarat State Petroleum Corporation (GSPC) in 2005-06. (The GSPC borrowed more than Rs 19,000 crore from banks.) In 2008, he joined Reliance Industries as president (business development).

Unlike his predecessor, whose flamboyant manner was regularly remarked upon by the media, not much is known about Patel, the person. Some describe him as “abrupt”. His collection of ties – purple, blue and orange – has often been a topic for conversation. Rajan went for jogs, but Patel is not known as a fitness freak. At the fifth BRICS Deputies’ meet in Durban in 2013, however, he was spotted on a treadmill every morning.

Patel lives with his mother, Manjula, in Mumbai and, if he can, dines with her every evening. The family is originally from Mahudha village in Gujarat’s Khera district, a traditional Patidar belt. His father, Ravinder, moved to Nairobi where he set up a chemical factory. Young Urjit studied at the Oshwal Academy Nairobi Primary and then at the Jamhuri High School.

“Urjit was calm, polite and always smiling,” recalls Umakant Patel, head of the Premiere Club of Nairobi. “He often came to the club for walks with his father.”

He was married in the mid-90s to Vibha Joshi, and the couple divorced in 2003. Joshi was the sister of Arvind Joshi, an IAS officer who was suspended in February 2010 after IT raids. Arvind and his wife, Tinoo, are in jail.

His personal history has little to do with the present, which is, clearly, tense. “He is on test now in what has been his most high profile and important job so far,” says Shumita Deveshwar, director, India Research at Trusted Sources, an independent investment research firm that focuses on emerging markets.

What he needs to do, an economist stresses, is communicate with the people. “He doesn’t talk much, and that’s his real problem,” says the economist who worked with him on a Planning Commission Plan. “Unless he communicates with the media, one won’t understand his stand as the RBI governor.”

Meanwhile, the Twitter world can’t have enough of Patel’s silence.

Missing Notice, says a post.

Name: Urjit Patel; Last seen: Altamount Road; If found inform RBI, Mint Road, Mumbai Distinguishing feature: Says yes to everything.

Another post asks: “Have you seen Urjit? Urjit Patel, 53, last seen at RBI Building. Please come home. All is forgiven. Situation serious.”

And serious it is.

‘To say that my attack on Urjit is personal is utter rubbish’

Congress leader and Rajya Sabha member Jairam Ramesh has demanded the resignation of the Reserve Bank of India (RBI) governor. “Urjit Patel is either guilty of misleading the nation about the RBI’s preparedness on demonetisation or has sacrificed the autonomy of the RBI. Either way he should resign,” he wrote in a recent article. He tells us in an email interview that those responsible for the “chaos, despair and panic among citizens” should be held accountable. Extracts:

Q. RBI governor Urjit Patel says the RBI is taking “all necessary actions” to ease the “genuine pain of citizens”. Your reaction?

A. The RBI governor’s response has only bolstered my argument that either the RBI misled the nation about its preparedness or got forced into this decision. The governor has not explained in unambiguous terms the cause for this chaos or concrete timelines to end this suffering of citizens.

Q. Finance minister Arun Jaitley called your column “an unfair attack”. Many in the BJP say it was a personal attack on Patel.

A. It is utter rubbish that this is a personal attack. It is now the unanimous opinion of all – bhakts and non-bhakts – that there is chaos, despair and panic among citizens over access to currency notes. So who is responsible for this? There has to be an accountability somewhere. We have a culture in this country where ministers resign over accidents or even natural disasters. This is a disaster of monumental proportion inflicted entirely by poor planning and execution. So is it not right to question the concerned person and authority?

Q. Do you think Patel is handicapped by his old connection with the Gujarat State Petroleum Corporation (GSPC)? [He was an independent director and chair of the audit committee of GSPC and is said to have approved GSPC’s excessive borrowings from banks.]

A. GSPC is certainly the elephant on the 18th floor office of the RBI headquarters! The Comptroller and Auditor General of India has indicted GSPC over its huge borrowings and squandering them away. The Indian Expresshas exposed a related party conflict between [ex-Gujarat energy minister] Saurabh Patel and GSPC. Urjit Patel was the chairman of the audit committee and independent director during this entire time. People in public life should be held to high standards of probity, shouldn’t they?

Q. Will Patel be able to deal with inflation, banking sector reforms and so on?

A. I do not for a moment doubt Urjit Patel’s academic credentials as an economist. The issue here is who is responsible for unleashing this unprecedented misery on the people of India and why should they not be held accountable.

Published in The Telegraph. December 4, 2016.



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