Urjit Patel, Beware of the spy in the garb of new Deputy

A diabolical Babu could be injurious to your health

If Dr. K. P. Krishnan (KPK) goes on to become the Deputy Governor of the Reserve Bank of India (RBI), a post for which he is eminently disqualified[1], it would confirm the weary voter that once again the current government is not serious about fighting corruption. They know full well the extent of corruption of KPK’s boss, the former Finance Minister P Chidambaram. Since my previous article[2] on the shocking move of the Financial Sector Regulatory Appointments Search Committee (FSRASC) to recommend the name of KPK has not elicited a response from the Finance Ministry, I have to assume that this is indeed true.

The real reason behind the agenda to strip RBI of its role to manage public debt is to create chaos in the bond market, and also in Forex market so that PC and company can make a killing.

As per the RBI Act, the central bank should have four deputy governors – two from within the ranks, one commercial banker and one economist – to head the monetary policy department. Short-listing of Dr. Krishnan is therefore clearly a violation of this norm.

Why make an exception?

I and PGurus have been constantly reminding this government of the fact that it is high time specialists were brought in to manage the affairs of the RBI[3]. In fact, the manner in which KPK has managed to get shortlisted by changing the norms shows that he is a master manipulator. Even if he was eligible to hold the post, it would not be in the interest of the apex regulatory institution like RBI to have such a person as its Dy. Governor for the following reasons:

1. Krishnan has a huge vested interest. He is P. Chidambaram’s man and works only on the agenda of Chidambaram (PC). Directly or indirectly, Chidambaram is known to be dabbling in the financial markets.
2. As a Joint Secretary, KPK got the Ministry of Finance to interfere in the shareholding pattern of NCDEX by forcing LIC and NABARD to divest part of their stakes in favor of National Stock Exchange (NSE)[4]. Such interference will become a regular feature in the banking sector and bond and foreign exchange (Forex) market once he is appointed as Dy. Governor.
3. Another major risk is that he can give PC advance tips about the plans of RBI’s intervention in the Forex and Bond market, and also the monetary policy changes and thereby indulge in ‘insider trading’. While this is patently illegal, look at the glacial pace with which the Securities and Exchange Board of India (SEBI) is moving in any of the several cases that have been brought to their attention.
4. Given the clout that Krishnan wields over the top bureaucrats in the government, it would not be surprising if he changes the composition of Monetary Policy Committee. Though designated as Dy. Governor, he would virtually call the shots at Mint street. This may sound obvious but it is not clear as to how much the decision makers comprehend the complex finance markets.
5. By virtue of his links with PC, and also being a Stephanian, Dr. Krishnan has been able to develop a vast network of bureaucrats. A large number of IAS officers studied in St. Stephen College. Dr. Krishnan also has the so-called ‘academicians’ in his network. They are all ‘committed’ academicians – committed to the cause of PC.
6. KPK is allegedly adept at using ‘honeytraps’ to control his superiors. Dr. Krishnan believes in the Chanakya’s principle of ‘Saam, Daam, Bhed and Dand’ for achieving his goals. This can be confirmed by talking to some of his superiors at the Finance Ministry during the UPA period.
7. How did Ms. Ila Patnaik end up as the Principal Adviser in the Ministry of Finance? Ila Patnaik is believed to be close to Ajay Shah, a key C-Company man[5]. Both of them work in National Institute of Public Finance and Policy (NIPFP). Dr. Krishnan had got huge grants sanctioned from PC[6] for NIPFP without stipulating any deliverables.
8. Ajay Shah and Ila Patnaik have made it a practice to publicly and harshly criticize the RBI policies. Their views on capital account convertibility and separation of Sovereign Debt Management (SDM) from RBI are well-known.
9. The debate on the alleged ‘conflict of interest’ in RBI managing public debt is not new. The empirical studies conducted by RBI indicate that there is no evidence of such ‘conflict of interest’. The PC gang knows it very well that the Government does not have the capacity to manage public debt. This is evident from the fact that the Middle office for debt management set up in Ministry of Finance is also manned by officers taken from RBI on deputation. The real reason behind the agenda to strip RBI of its role to manage public debt is to create chaos in the bond market, and also in Forex market so that PC and company can make a killing. PC is a man in a hurry, he does not want to wait till an alternative effective agency is established to manage the debt office.
10. What is more disturbing is the level to which Dr. Krishnan can stoop. After he was removed from the Capital Markets Division and Dr. Thomas Mathew succeeded him, KPK allegedly continued to remain in touch with every development in that Division through his loyal subordinates – some names mentioned are Rosemary Abraham, Chandrashekhar Mahapatra, and C. K. G. Nair. Abraham and others would allegedly brief Dr. Krishnan on a daily basis about the meetings held by Dr. Thomas Mathew. This should be verified – some of them are still in the Government.

PMO pay heed

RBI now has to decide whether:

• It wants to acquiesce to the flagrant violation of the well-established norm that one of the Dy. Governor – which is the vacancy at present – has to be a banker.
• It wants to be run by the tainted ex-Finance Minister through his proxy;
• It wants to be governed by a Dy. Governor who has greater clout than the Governor;
• It wants the ‘committed’ academicians like Ila Patnaik and Ajay Shah to decide the exchange rate management, public debt management and even monetary policy.

The ball is now in the court of the Prime Ministers Office (PMO). Appointing KPK as Deputy Governor would be a Raghuram Rajan like mistake.

References:

[1] Why the delay in the selection of Deputy Governor? Apr 27, 2018, PGurus.com

[2] Are the decks being cleared for PC’s minion to be RBI’s Dy. Governor? May 22, 2018, PGurus.com

[3] Chat with M R Venkatesh on the health of the Private Banks of India  Apr 23, 2018, PGurus channel, YouTube

[4] The Target – 2016, Shantanu Guha Ray

[5] C-Company- Part 9 – A Long History of Harassment – Nov 28, 2017, PGurus.com

[6] Anatomy of a crime P5 – Conclusion – Oct 9, 2017, PGurus.com