In his book titled 'We Also Make Policy: An Insider's Account of How the Finance Ministry Functions,' former finance secretary Subhash Chandra Garg has highlighted instances of significant policy shifts during the tenure of former RBI Governor Urjit Patel.
Under Urjit Patel's leadership, the Reserve Bank of India (RBI) was noted for frequently reversing its stance on various issues, including electoral bonds and digital payments, according to Garg.
Garg's book mentions specific instances of policy reversals by the RBI during Patel's term, notably concerning the electoral bond issue and the establishment of the Payments Regulatory Board (PRB). Additionally, Garg writes that the RBI made unilateral decisions, such as mandating complete data localization for participation in the payment system.
The book points out that there were concerns regarding the PRB report, emphasizing that it was unanimous, and any dissent should have been raised before the report's finalization. Garg reveals that the government had urged the RBI to communicate any dissenting opinions so they could be included in the report, along with a rejoinder to address any concerns raised by the RBI. However, the RBI inaccurately claimed that its representative had submitted a dissent note, which it posted on its website as a press release in October 2018.
Despite recommendations by an inter-ministerial group led by Garg, the government did not take action, particularly on measures with the potential to transform payment architecture, infrastructure, and institutional arrangements in India. Although some of the recommendations have been acted upon by the RBI, India still lacks the institutionalization of a robust experimental regulatory sandbox.
The book also discusses Patel's reluctance to utilize the RBI's reserves for transfer to the Indian government, which led Prime Minister Narendra Modi to liken him to a "snake guarding a hoard of money."
Subhash Chandra Garg, who served as the Economic Affairs Secretary and later as the finance secretary to the Government of India, addresses various topics in his book, including decisions related to setting minimum support prices for farmers, introducing electoral bonds, recapitalizing banks, and monetizing airports. However, the most contentious issue during his tenure was the strained relationship between the Reserve Bank of India and the Finance Ministry.
The book recounts a meeting convened by Prime Minister Narendra Modi in September 2018, where tensions between the government and the RBI came to the fore. During the meeting, Prime Minister Modi expressed frustration with Patel, comparing him to a "snake guarding a hoard of money." The PM criticized Patel's stance on resolving non-performing assets (NPAs) and other issues.
Garg also describes an incident where Patel agreed to convene a special meeting of the Central Board of the RBI but later backed out, prompting PM Modi's criticism. Patel resigned from his position on December 10, 2018, in an unconventional manner by posting his resignation letter on the RBI's website. His resignation letter did not mention the government, the Prime Minister, or the Finance Minister.
In conclusion, Garg's book sheds light on the complexities of policy-making and interactions between the Finance Ministry and the RBI during a challenging period. It highlights the evolving policy landscape and the personalities involved in shaping India's economic policies.
