2018.12.1008:45:00UTC+00RBI Governor Urjit Patel Steps Down After Rift With Government

The Reserve Bank of India Governor Urjit Patel resigned on Monday, citing personal reasons, and his decision comes after the central bank has been embroiled in a series of conflicts with the Narendra Modi government over crucial matters including central bank independence. "On account of personal reasons, I have decided to step down from my current position effective immediately," Patel said in a statement. "It has been my privilege and honor to serve in the Reserve Bank of India in various capacities over the years."

His term was to last until September 2019. Patel became the RBI governor in September 2016, after Raghuram Rajan decided to step down at the end of his term. Previously, Patel served as deputy governor since 2013.

The Modi government's drastic move of demonetization, which meant abrupt cancellation of more than 80 percent of currency in circulation, took place just two months after Patel became the RBI governor. Opposition politicians and several economists called the measure "draconian", while pro-government commentators claimed it as a "masterstroke". "The support and hard work of RBI staff, officers and management has been the proximate driver of the Bank's considerable accomplishments in recent years. I take this opportunity to express gratitude to my colleagues and Directors of the RBI Central Board, and wish them all the best for the future," Patel said. The RBI Governor's resignation comes at a worse time for Narendra Modi. Results of the local elections in some key states are due on Tuesday and exit polls suggest Modi's party, the BJP, is set to face defeat in Rajasthan and lose majority in Madhya Pradesh and Chhattisgarh, all three heartland states. Markets and economy observers have been speculating such a drastic move from Patel over the past few months after the rift between the central bank and the government over a wide range of issues became public.

The two were at loggerheads over important issues such as central bank independence, the use of central bank reserves, bad loans, and rules on lending to small and medium businesses. Following Patel's resignation, his predecessor and former IMF Chief Economist Raghuram Rajan said in an interview in the Indian media Patel's resignation should be a matter of grave concern for all Indians. Rajan's decision to not to seek a second term took many by surprise in June 2016. The move was apparently prompted by the severe criticism he faced from some ruling party politicians for his remarks on the Modi government and his focus on lowering inflation.

In June this year, Arvind Subramanian stepped down as the chief economic adviser to the government, ahead of the expiry of his term next year.