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Second top level exit in RBI within six months; Viral Acharya quits

Reserve Bank of India (RBI) Deputy Governor Dr. Viral Acharya has resigned from the board of the central   bank six months before the scheduled end of his term. The youngest Deputy Governor cited “unavoidable personal reasons” as the cause for his abrupt departure. Acharya, who joined the RBI on January 23rd 2017 for a three year term, will be returning to New York’s prestigious Stern School of Business to continue his teaching profession as a professor of Economics.

For those of us who are familiar with the recent history of the RBI under the Modi led NDA government, this resignation has deeper implications and cannot be taken at face value or shrugged off with a simple statement such as “due to personal reasons”.

Acharya’s resignation marks the second recent top level exit from the RBI, after its Governor, Urjit Patel, unceremoniously left in December of last year over serious differences with the government on the issue of the Central Bank’s independence. And, if one back tracks even further, other top economists such as Raghuram Rajan and Arvind Subramanian were also not given an extension of their terms and left for reasons not very convincing.

If one digs a little deeper, a pattern seems to be emerging which suggests that the incumbent government does not look too favourably upon external or independent professionals with competence and qualification such as economists; instead preferring persons from within the government machinery. The appointment of RSS ideologue S. Gurumurthy to the RBI board and the favouritism shown to IAS officers such as Shaktikanta Das and Hasmukh Adhia all but allay such concerns.


The 45 year old Viral Acharya, who was always frank about his views, surprised the country in October last year when he made his views public on differences between the RBI and the government. Citing the example of the Argentinean central bank governor, who resigned after the country’s government raided the central bank’s balance sheet, Acharya stated “Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution”.

It is also important to note that in the last two out of three meetings of the monetary policy committee, Achraya voted for a pause in the policy rates because of emerging risk to inflation and fiscal slippage, however, rates were still reduced due to majority of votes. After the exit of Urjit Patel, Acharya was probably the lone conservative voice in the RBI, an organisation traditionally known to be conservative and not bending to the government or populist opinion.

Acharya’s exit comes at an untimely moment for the Modi government as it is close on the heels of former Chief Economic Advisor Arvind Subramanian’s hard hitting research paper that states India’s GDP between years 2011 and 2017 was overstated by about 2.5%.

Another instance of a head of state interfering in the policies of its central bank is US President Donald Trump. Trump’s constant rhetoric of attempting to force the hand of the Federal Reserve Chairman, Jarome Powell, to reduce interest rates, including threatening to demote him, has left the banking and financial system in the US in shock. The Fed (as the central bank is called) hasn’t given in to pressure and left rates unchanged. However, it changed its stance and signalled it was ready to lower interest rates for the first time since 2008.

Authoritarian governments such as those of Trump and Modi have a history of attempting to dilute autonomous institutions with their autocratic style of leadership. Democracy, however, till today, has stood the test of time and we hope it continue to do so for a long time to come.


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