One of the greatest mysteries in modern economic history is why India let Raghuram Rajan go. In his three years as central bank governor from 2013 to 2016, the former International Monetary Fund economist restored calm to Asia’s No. 3 economy.

In short order, he tamed inflation, stabilized the rupee, worked to reduce bad loans in the banking system and talked credit-rating companies out of downgrading New Delhi.

And then, in September 2016, Rajan, who’s often listed among Nobel Prize candidates, was out of a job. The popular excuse: he was too slow to cut interest rates.

Prime Minister Narendra Modi opted for Urjit Patel instead, Rajan’s deputy. Fears that Modi had hired a yes-man seemed confirmed by the demonetization debacle of November 2016.

RBI Governor Urjit Patel speaks during a news conference after the bimonthly monetary policy review in Mumbai on December 7. Photo: Reuters/Danish Siddiqui
RBI Governor Urjit Patel speaks during a news conference after the bimonthly monetary policy review in Mumbai on December 7. Photo: Reuters/Danish Siddiqui

That was when Modi announced one of modern policymaking’s most audacious gambles: immediately yanking all 500- and 1,000-rupee notes from circulation to curb “black money.”

Pulling all high-circulation bills made it harder for black marketeers and tax evaders to move ill-gotten gains around. Fascinating idea, terrible execution.

In his new book, “I Do What I Do,” Rajan is merciless in his criticism of Modi’s policy.

In his new book, “I Do What I Do,” Rajan is merciless in his criticism of Modi’s policy. That also means Patel, who handled -– and botched — the logistics.

Dozens literally died scrambling to exchange their life savings as 86% of currency in circulation was suddenly ruled useless. Dismal logistics cratered national growth rates and dented Modi’s reputation for competence, one honed over 13 years running the western state of Gujarat.

“We’ve slowed considerably since then,” Rajan told CNBC in describing the fallout from demonetization. “And we’re slowed when the world economy had taken off.”

Can Patel turn things around and rehabilitate the Reserve Bank of India’s credibility both locally and globally?

Patel must accelerate the effort as growth slows and Modi fobs off his responsibilities on Patel’s team.

We can debate what was on the minds of lawmakers and Modi when they let Rajan slip through their fingers. What’s not under debate is that after a few structural reform wins, Modi appears to be slipping into re-election mode. That might be fine if the vote wasn’t 18 months away – a vital window of opportunity India can’t waste as China races forward.

This is an 18-month window Modi won’t use to modernize the land, labor and tax laws to raise India’s competitiveness and create good-paying jobs.

It’s one he won’t use to step up efforts to get his “Make in India” manufacturing boom off the ground and generate millions of high-paying jobs in export industries. Nor is he likely to use it to upgrade infrastructure and reduce power costs fast enough to impress the Toyota’s, Samsung’s and Unilever’s of the world.

Hubris explains some of Modi’s calculation. It’s a mistake his Bharatiya Janata Party made in 2004, telling voters India was “shining” and getting tossed out by the millions not feeling the economic magic.

Hubris explains some of Modi’s calculation. It’s a mistake his Bharatiya Janata Party made in 2004, telling voters India was “shining” and getting tossed out by the millions not feeling the economic magic.

Then, as now, New Delhi seems keen to leave macroeconomic maintenance to the central bank and leave retooling that might irk vested interests for another day.

Credit where it’s due: Modi has opened aviation, insurance and defense industries a bit more to foreign investors, tweaked bankruptcy law and helped spirit a long-stalled national goods-and-services tax into reality (even if GST implementation was its own fiasco).

But those successes were meant to pave the way for bigger reform bangs to get the crushing role of the state out the economy.

Patel must be more assertive in repairing the damage from demonetization.

He mustn’t allow the RBI to become Modi’s ATM machine – a liquidity crutch that enables the government to rest on its laurels. It’s a mistake that others made – especially the Bank of Japan – and it’s one for which posterity will punish Modinomics.

Another priority: address India’s bad-loan problem.

Rajan didn’t get a chance to see through plans to curb non-performing loans at state-run lenders, which recently hit a 15-year high. New Delhi admits to about $200 billion of zombie loans.

If we’ve learned anything from Japan, Thailand and China over the last 20 years it’s that, odds are, the real figure is exponentially higher.

Patel needs to take the problem as seriously as Rajan did. Lower rates might only exacerbate it. Better to create mechanisms to take distressed assets off balance sheets, perhaps akin to America’s Resolution Trust Corp. from the 1980s.

It’s no mystery what Patel needs to act independently and nimbly to prod Modi’s government to disengage the autopilot. India’s ability to keep the economy aloft in the long run depends on Modi, not Patel’s ATM.

(William Pesek is a Tokyo-based journalist, former columnist for Barron’s and Bloomberg and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” Twitter: @williampesek)