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News Of The Day : RBI Governor is a major embarrassment for the government -12/12/2018
- December 12, 2018
- Posted by: Shivam
- Category: NEWS Worth To Read
Urjit Patel stepping down as RBI Governor is a major embarrassment for the Government
The Reserve Bank of India Governor Urjit Patel has cited personal reasons for resigning with immediate effect, but anyone who has followed the events of the last couple of months will know it was anything but that. It was a period during which the Centre and the RBI were engaged in an unseemly tussle over a clutch of issues that had a bearing on the RBI’s autonomy, something that Mr. Patel had sought to preserve. As his predecessor Raghuram Rajan pointed out, when a public servant resigns, it is a sign of protest. Mr. Patel’s decision clearly caught everyone by surprise as it came following perceptions of a thaw in relations between the Centre and the RBI, after an agreement was hammered out at a board meeting last month on some of the contentious issues, including a controversial proposal to use the central bank’s reserves for fiscal purposes. But clearly, the larger issue that divided the Centre and the RBI — which related to autonomy and the independent functioning of the Governor — was never fully resolved. Mr. Patel’s resignation is a serious embarrassment to the NDA government, which has scrambled to make statements expressing surprise at his action and praising him for his work. As attempts to signal that it had nothing to do with Mr. Patel stepping down and to reinforce that he did indeed quit for personal reasons, these remarks were largely unconvincing.
Mr. Patel’s resignation is bound to raise questions about the Centre’s ability to work with independent-minded economists, coming as it does following the departures of former RBI Governor Raghuram Rajan, who was at odds with the Centre on many issues, and the sudden resignations of Niti Aayog Vice-Chairman Arvind Panagariya and Chief Economic Adviser Arvind Subramanian. It is true that Mr. Patel’s reclusive and non-communicative style may not have endeared him to some bankers, but his eminence as an economist and his understanding of macro-economic issues is undisputed. Governments have sparred with the RBI before on the issue of autonomy, but the NDA government went one step further by starting consultations under Section 7 of the RBI Act, which gives the Centre the power to direct the RBI to act in specific ways. The immediate priority now is for the Centre to fill the breach without wasting time. Global investors and the markets are already on edge, and they will be keenly watching, along with the ratings agencies, how the Centre handles this self-created crisis. The incoming Governor is bound to be judged, among other things, by perceptions about his independence. The RBI cannot be treated as if it is just another government department. And the Centre will now need to demonstrate that a post-Patel central bank will continue to enjoy operational autonomy. Anything less will not go down well with both investors and the markets.
The Congress’s performance in the Hindi heartland will enthuse it in the run-up to 2019
For a party that had appeared to be lost in the political wilderness over the past few years, the Congress has plenty to cheer about following the results in the recent round of Assembly elections. In the three Hindi-speaking States, where it was locked in a direct contest with the Bharatiya Janata Party, the Congress has performed more than creditably, raising hopes of a revival of fortunes as the country gears up for the general election in 2019. In Chhattisgarh, the party probably well exceeded even its own expectations by building a massive 10-percentage point lead over the BJP, setting itself up to win more than a two-thirds majority. The battle in Rajasthan and Madhya Pradesh were on a more even keel, but at the time of writing it appears that the Congress may have done enough to form a government in both States. A measure of how much of a reversal this is for the BJP can be gauged by comparing this result with that of the 2014 Lok Sabha election, when the BJP won 62 of the 65 parliamentary seats in the three States. If the Congress struggled to breast the tape in Rajasthan and Madhya Pradesh, it was because independents and smaller parties registered a few surprise victories; in Rajasthan, for instance, more than a dozen independents were among the winners. If the results are interpreted as pointers on how the 2019 election will play out, then the Congress may be still short of where it would like to be. But the results may well infuse the party leadership with the confidence that it is on the comeback trail.
The Congress’s performance in these States will take some of the sting out of its losses in Telangana and Mizoram, where it was bested by regional players. The Telangana Rashtra Samithi won big, making light of the broad alliance put together by the Congress. Indeed, the alliance between the Congress and the Telugu Desam Party may well have polarised the contest in favour of the TRS. The TDP, which rules neighbouring Andhra Pradesh, is not exactly a popular party in much of Telangana because of its vacillations on the question of the creation of the new State. It is possible that the Congress was looking at the larger picture while deciding to ally with the TDP, seeing the regional party’s leader N. Chandrababu Naidu as a rallying point for Opposition unity. United Andhra Pradesh was one State that contributed significantly to the Congress tally in both 2004 and 2009, and to be reduced to such pitiful numbers in Telangana, with little room for improvement in Andhra Pradesh, should certainly be a cause for concern for the national leadership of the party. Winning an ally in the TDP is small recompense for the massive erosion in the Congress’s support base in the region. In Mizoram, where people vote against the Congress whenever the party is out of power at the Centre, the Mizo National Front was, unsurprisingly, the winner this time. But this defeat held another pain point: it saw the Congress losing its last citadel in the Northeast.
The best news for the Congress was of course Chhattisgarh. The presence of a third front in the form of the Janta Congress Chhattisgarh, led by former Chief Minister Ajit Jogi, and the Bahujan Samaj Party, which took away a chunk of the anti-incumbency votes, did nothing to deny the Congress a big win. Chhattisgarh had voted overwhelmingly for the BJP in 2014, giving it 10 of the 11 seats, and the dramatic reversal in fortunes must have shocked the BJP. But the Congress can also take heart from the performance in Madhya Pradesh, a much larger State that sends 29 members to the Lok Sabha. Although there was not much that separated the two parties in terms of vote share, the Congress can reasonably believe that the momentum is with it. In Rajasthan, where it performed stunningly in by-elections, and where anti-incumbency sentiment was believed to be riding high, the Congress, despite its victory, may regard its own performance as sub-par. For the BJP, the setback in Rajasthan, which has not been kind to the incumbent from 1998 onward, was no surprise. Despite conceding a substantial number of Assembly seats, the party can take solace from the fact that the difference in vote share between it and the Congress was minuscule. However, looking forward, the BJP will be worried that the results will encourage the Congress and the BSP to come together in an electoral embrace. In Madhya Pradesh, the BSP has demonstrated its strength, or at the very least its capacity to be a spoiler. An alliance of the Samajwadi Party, the BSP and the Congress that extends beyond Uttar Pradesh to Madhya Pradesh can seriously alter the political landscape of the region.
As for the BJP, the results are an opportunity to introspect. Not just on the performance of its governments in the State, but also the performance of the Narendra Modi government at the Centre. To reduce the results of the Hindi-speaking States to the intangible anti-incumbency sentiment would be a mistake. After all, both Chhattisgarh Chief Minister Raman Singh and Madhya Pradesh Chief Minister Shivraj Singh Chouhan survived two elections as incumbents. A potent mix of rural distress and urban angst seem to have contributed to the erosion in the BJP’s support base. Farmers suffered disproportionately and for longer following demonetisation, and small traders in urban areas have felt handicapped by the straitjacket of the Goods and Services Tax. It may be tempting to think that aggressive cow vigilantism and the Ram temple will influence voter behaviour, but these elections underline it is livelihood concerns that really influence voter behaviour. The BJP will need to tackle issues of employment and development with better intent if it is to arrest the slide. The first term of a Prime Minister is won on promise, but the second term will have to be won on performance. Not even Narendra Modi is an exception to this.
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