 Hello and welcome to NewsClick. In a dramatic development, the Governor of the Reserve Bank of India, Dr. Ujit Patel, put in his papers. He cited personal reasons but the tension between the government and the Reserve Bank of India had been building up for the last several months and this has come as a huge surprise. Prime Minister Narendra Modi has praised Dr. Ujit Patel in fulsome terms, described him as a thorough professional, impeccable integrity and economist of very high caliber with a deep and insightful understanding of macroeconomic issues. But the short point is by putting in his papers at this juncture on the eve of the announcement of the results of the five assembly elections, it has thrown the country into a tizzy. It's not just the markets which are going to collapse, which are almost certainly going to collapse. It's certainly not enhanced the image of the government. What is very, very significant is that one of the reasons that were apparently behind the tension between the Reserve Bank of India and the government was a nominee of the government, though he's designated as a part-time independent director, Mr. Guru Murthy, Mr. S. Guru Murthy, who is an idologue of the Rajashtriya Swamiji Bakshan, he's been a co-convener of the Swadeshi Jagran Manj and his presence on the board, it appears to many, added to the tension. And when the deputy governor of the Reserve Bank of India, who hasn't resigned mind you, when Dr. Viral Acharya came out with a public, he gave a speech in public, it was many believe that this was a not so subtle message being put out by Dr. Urjit Patel that if the autonomy of the country's central bank and the Apex monetary authority is not respected, it would lead to very, very serious consequences. He talked about the markets getting roiled, but he cited the example of what happened in Argentina, but it's interesting to note that the member of the central board of directors of the Reserve Bank of India, Mr. Guru Murthy, had the following to say. He said, surprised at the news that the RBI governor has resigned. And he said the previous meeting was held in such cordial atmosphere that it comes as a shock. All directors said media had created a wrong perception while inside it was different. That makes it even more surprising. This is Mr. Guru Murthy for you. The RBI governor had also met the Prime Minister, but clearly the differences were irreconcilable and there were a host of differences. Let's quickly summarize what these differences were. One, the prompt corrective action that was to be taken against banks. This created a huge turmoil and the Reserve Bank's insistence that this be implemented certainly didn't go down very well with many of the banks, notably the public sector banks. Point number two, the attempt to change or restructure the manner in which the Reserve Bank of India would give its monies to the government of India created a set of tensions. A committee has been formed, but those who were critical of the government were clear that this was an alleged attempt by the government to quote unquote raid the treasury. A certain amount of money is given by the Reserve Bank of India for a variety of reasons which are very very complicated. But it was clear that though the government denied it, there was some attempt on the part of the government to pressurize the Reserve Bank of India to give more money to the exchequer, including the threat to invoke section seven of the Reserve Bank of India Act which had never ever been done since that act was put in place in the 30s. That was unprecedented. There were other reasons as well. One of the reasons was the non-performing assets of power companies, including power companies that have been promoted by the Adani group, the SR group, the Tata group. Now there was this entire proposal on how these companies, their stressed financial assets were to be treated. There was a deadline that was imposed by the RBI. They moved court at the Supreme Court level. They said, let the cabinet secretary form a committee to decide on this matter whether these loans that had not been repaid should be declared as non-performing assets, stressed financial assets. And if that was the case, the control over these assets would get out of the hands of the promoters and the banks and go to the national company law tribunal under the insolvency and bankruptcy code. Now interestingly when the cabinet secretary P.K. Sinha convened not one but two meetings to resolve this issue whether the declaration of the stressed assets of these companies would be postponed or there was some scheme to be found the Reserve Bank of India's representatives didn't show up there. Sources from North Block which houses the Ministry of Finance, they said the RBI governor was behaving in an intransigent manner. The short point, whatever be, there have always been tensions between Minstreet, that's the headquarters of the Reserve Bank of India and North Block, the headquarters of the Ministry of Finance. There have always been tensions but these tensions have historically been about what the interest rate should be. The contours of the monetary policy never before, only once before has a serving governor of the Reserve Bank of India resigned and that was during Nehru's time. Since then this is the first time that a governor of the Reserve Bank of India, sitting governor of the Reserve Bank of India has put in his papers and there were other reasons as well. One of the reasons was whether the Reserve Bank of India should relax its norms and give more credit to micro, small and medium enterprises, an agenda which was reportedly being pushed very hard by Mr. Guru Murthy. The government of India announced a scheme but the point is all these pressure points at some point clearly didn't go down well and this is one more institution, one more institution which is supposed to be independent and autonomous which has now collapsed. I'm using strong language but I don't think there's any way to describe it, whether it be the Central Bureau of Investigation and now after that the resignation of the governor of the Reserve Bank of India is not going to enhance the image of the government. This was the same governor who convened a meeting, the evening demonetization was announced in November 2016, later on many years later, two years later it was disclosed that the directors who approved this decision did not go along with the government's logic with Narendra Modi's logic that this would root out black money from the system. They expressed their apprehension at that juncture itself but this was not disclosed until very, very recently. So the same Dr. Urjit Patel who had according to many been pliant and gone along with the government, gone along with the prime minister when he announced the decision to demonetize 86% of the currency in circulation a little more than two years ago. This is the same person who's now put in his papers. At the end of the day what damage control will take place, time alone can tell. Who will be the new governor of the Reserve Bank of India? I guess Mr. Narendra Modi may know the answer but what has happened is certainly not going to enhance. I repeat not going to enhance his image as the Prime Minister of India. Is this the beginning of a period where we'll see Mr. Narendra Modi's power decline? Again, it's early days. In a very short while from now we will know the results of the assembly elections in Rajasthan, Madhya Pradesh, Chhattisgarh, Telangana and Mizoram. The next general elections are scheduled to take place in April May of 2019. A new chief economic advisor has just been appointed and he has a track record of being a person who supported demonetization. But I can say without any fear of contradiction after many many decades has the country's economy and financial system been so turbulent, been so disturbed as it is at present and this series of tumultuous and turbulent developments have culminated in the dramatic and sudden decision of the governor of the Reserve Bank of India, Dr. Ujith Patel to put in his papers.