Former Finance Secretary Subhash Chandra Garg has provided insights into a significant meeting from 2018, during which Prime Minister Narendra Modi made a notable comment about former Reserve Bank of India (RBI) Governor Urjit Patel. Garg's revelations about this event are part of his upcoming book titled 'We Also Make Policy,' which is scheduled for release in October. The book sheds light on the strained relationship between the government and the RBI during that period.
According to Garg, the incident occurred during an economic review meeting on September 14, 2018. In the book, Garg detailed the events leading up to Urjit Patel's resignation as RBI Governor and the dynamics at play during this critical meeting.
During this approximately two-hour gathering, Urjit Patel presented recommendations, all of which were directed towards the government, with no proposed actions for the RBI beyond its ongoing efforts. Garg noted, "He (Patel) offered some recommendations—all for the government to take and nothing for RBI to do, besides what it had been doing already." This suggested that Patel believed the RBI was not adequately addressing the economic challenges and was reluctant to take further steps to address these issues or reconcile differences with the government.
It was during this tense meeting that Prime Minister Modi made the memorable remark, likening Urjit Patel to a "snake who sits over a hoard of money." This comment marked a significant shift in PM Modi's demeanor during the discussion. He strongly urged Patel to convene a board meeting and collaborate with the then Finance Minister Arun Jaitley and the finance team to find solutions to the prevailing issues.
One of the contentious issues between the RBI and the government revolved around the transfer of surplus funds from the RBI. Garg recalled a specific RBI board meeting in August 2017 when the government proposed retaining Rs 13,400 crore of the RBI's surplus of Rs 44,200 crore for the fiscal year 2016–17. Garg advocated for the complete transfer of the surplus to the government, consistent with past practices.
The underlying tensions between the government and Urjit Patel originated in February 2018 when Patel introduced a rigorous framework for handling non-performing loans in the banking sector. This eventually led to Patel's resignation as RBI Governor on December 10, 2018, citing policy disagreements with the government.
During the September 14 meeting, Patel provided a pessimistic assessment of the economic situation and put forth suggestions that included abolishing the long-term capital gains (LTCG) tax, substantially increasing disinvestment targets, attracting investments from multilateral institutions in government bonds, and addressing pending bills of various companies, including micro, small, and medium-sized enterprises (MSMEs).
The introduction of the RBI's February 12 circular, aimed at addressing non-performing loans, posed challenges for banks dealing with loans to power-sector companies. In response, the government invoked Section 7 of the RBI Act, enabling it to issue directives to the RBI governor following consultations.
Garg emphasized that the RBI chose not to cooperate with the government on this matter and refrained from participating in meetings of a committee chaired by the cabinet secretary that was tasked with finding solutions. He stated, "RBI decided not to work with the government on this. It did not attend the meetings of a committee constituted under the chairmanship of the cabinet secretary to find solutions to the issue."
