WHAT LED TO URJIT PATEL'S RESIGNATION? AN INSIDER EXPLAINS

There have been resignations in the Reserve Bank of India (RBI), but governor Urjit Patel's in 2018 over policy differences was a rare event in the history of the central bank, writes former finance secretary Subhash Chandra Garg in his book. He details the frustration of the government with the RBI under Patel and the circumstances that eventually culminated into the latter posting his resignation on the RBI website

- Subhash Chandra Garg

The key features of the electoral bond scheme were approved at the highest level of the government in late August/early September, with RBI on board. The bonds were to be issued as physical bonds by scheduled banks authorized by the government.

Governor of RBI, Urjit Patel, for reasons best known to him, wrote to Finance Minister Arun Jaitley sometime in the middle of September questioning the issuances of bonds by anybody/bank other than RBI.

Equating the bonds as currency, he wanted RBI to issue the bonds as it was the monopoly issuer of currency. This was a shocking ask. The RBI Act had been amended, which provided for the government-authorized scheduled banks to issue electoral bonds. By making this proposal, he was questioning the law of the land.

The second suggestion was a bigger shocker. Urjit Patel proposed that the bonds be issued in digital, not physical mode. This implied that potential donors would have to apply digitally to RBI to buy electoral bonds; and RBI after completing the entire process of KYC and collecting funds from the buyer's bank account would issue a digital bond that the buyer would digitally transfer to a political party. Finally, the political party would collect the proceeds of the bond digitally by going through the banks. Every political party would know who had contributed, and so would the EC and RBI. This would kill the most important feature that Arun Jaitley wanted to build in-the anonymity of the donor vis-àvis political parties.