This may not be the first time when the Reserve Bank of India (RBI) will be headless. There have been a couple of instances when the governor of the day had to vacate the corner office on Mint Street following differences with the government on running the financial sector.
Urjit Patel’s sudden resignation was preceded by an ugly spat with the finance ministry and the minister Arun Jaitley. A similar bittersweet relationship between the RBI governor and government had earlier put a question mark on the autonomy of the institution.
But past governments, be it that of NDA under prime minister Atal Bihari Vajpayee or the UPA government under Manmohan Singh have ensured that differences did not result in ugly spats and the transition from one to the other remained smooth.
In 2003, the Vajpayee government ensured that the transition from the then RBI governor Bimal Jalan to YV Reddy not only remained smooth, it also prevented unpleasant exchanges as the outgoing governor was offered an honorable exit to join the Rajya Sabha as a member.
The incoming governor in 2003, YV Reddy, also contemplated leaving his job twice soon after P Chidambaram became finance minister in 2004 and then before his tenure ended in 2008.
But the government of the day then under Prime Minister Manmohan Singh averted any crisis and a direct intervention by the Prime Minister’s Office ensured that Reddy and Chidambaram not only had a truce but the RBI governor also conveyed to the finance minister that he would keep in mind the issue of being ‘supportive’ to government policies. However, the uneasy relationship with the finance minister meant that Reddy served his full tenure till 2008 but refused to take a second term offered by the prime minister.
In his autobiography ‘Advice and Dissent: My Life in Public Service’, Reddy said the two (he and Chidambaram) started off on a disagreement over the opening of the banking system to foreign ownership and by 2008 “there was a growing distance between us.” “His (Chidambaram’s) image as a reformer pushing for double-digit growth was, in his view, being denied by my caution to the extent of resisting implementation of some of his policies,” Reddy wrote. The minister even canceled a foreign tour because he could not face investors with anything to report on reform.
The former bureaucrat went on to write that in early 2008 he got a call from the Prime Minister’s Office, requiring him to urgently travel to Delhi to meet Manmohan Singh. When the Prime Minister told him about how his unease with the finance minister Chidambaram was not good, Reddy says, he told the Prime Minister that he did not need to bother about this problem and would take care of his relationship with the minister.
While Singh thanked him “profusely”, Reddy writes that he drove to Chidambaram’s residence and “expressed my unconditional apology to him and conveyed that I would keep in mind the issue of being supportive” to government policies.