The RBI Governor's redemption?

This editorial by Livemint and this article by Andy Mukherjee in support of the RBI Governor Urjit Patel as he completes two years are very good. I think the Governor deserves his redemption, especially given the roasting that he got immediately after he took charge on an issue over which he (or any other RBI Governor could have) had very limited control.

One can quibble about the merits of sticking doggedly to the February 12 circular that mandate banks refer all defaults on aggregate loans above Rs 20 billion, without any qualifications, beyond 180 days for insolvency proceedings. But RBI's steadfastness, especially given the stakes and parties involved and the pressure that would have been mounted personally on the Governor, is commendable. All the more so since the nature of the power sector loans may have offered a compelling rationalisation to provide an exemption. Good to know that not everything is for sale in public service, when stakes are as high as it can get.

Apart from his relative reluctance to engage with the media, I am inclined to believe that the Governor has done well over the last two years. As the Mint editorial says, the fierce protection of the nascent Monetary Policy Committee may well be regarded by posterity as a lasting personal contribution to nurturing an important institutional mechanism. 

On the reluctance to engage with the media, I think Mr Patel may perhaps be doing the right reset after a regime which engaged excessively with the media. And in any case, the benefits of central banks forward guidances and excessive communication are questionable. Asymmetric ignorance in monetary policy may actually be useful in disciplining market participants.

As to the February 12 circular itself, given the deeply entrenched nature of politician-promoter-banker nexus a destabilising mutation in terms of regime shift is perhaps necessary to recalibrate to a new equilibrium. A less disruptive, or gradual transition, would most likely not have had the effect of disrupting entrenched relationships and ushering in a healthier banking culture. If it entails the accompanying pain, then so be it. Fortunately, if there is any time the Indian economy can take such a surgery there may not any better time than now. 

If the Government decides to grit it out, even if for political considerations, and does not invoke its powers to issue directions to the RBI on the circular, it would deserve a big dose of commendation. Not too many governments anywhere in the world in these risk averse times would have played along with such deeply disruptive and politically inconvenient technocratic decisions.