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What Are the Expected Impacts of Governor’s Exit From RBI:

 

The short-lived legacy of appointing technocrats and experts as RBI Governors has ended with the exit of Urjit Patel. The country is back to appointing bureaucrats as RBI heads, who for most part of their professional careers, have dealt with political pressure more than with technicalities involved in economics of India.

 

The exit is expected to have a disastrous impact on the future course of RBI. Raghuram Rajan had put RBI on the international map. With his exit, RBI lost some of its charm but now, with exit of Urjit Patel due to arm-twisting by the Government, the remaining sheen is also gone.

 

  1. Institutional weakening of the central bank in India- In most countries, Governments like to distance themselves from central banks. The central banks should independently work to ensure for long run benefits of the economy. With untimely exit of Governor, the independence of RBI and its institutional standing has been questioned.
  2. Monetary Policy Implementation- With technocrats as heads of RBI, the Monetary policy had become more technical and sounder. Long term implications of monetary policy had overtaken short term goals, making it more reliable and internationally acceptable. Now that bureaucrats have returned as head of RBI, the psychological dependency on policies of RBI has been broken.
  3. Governor will be a political allegiance appointment ending the scope for professionals becoming RBI Governors- There will be intense competition for bureaucrats to become the central bank Governor as anybody with an independent opinion and sound economic thinking is automatically disqualified.
  4. More powers to the Director Board- The Government is expected to give more powers to the Director Board where the big non-experts will indirectly control the central bank. This will weaken the expert voices within RBI.

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