Viral Acharya Resigns, RBI Tamed

Viral Acharya Resigns, RBI Tamed

The youngest Deputy Governor of the Reserve Bank since the economic liberalisation of India, Viral Acharya has expectedly resigned, six months before the end of his tenure, perhaps well aware that it will not be renewed and extended by the Modi government. After the surprise resignation of Dr. Urijit Patel the RBI governor, nine months before the end of his tenure, as he valiantly fought to protect the independence of the RBI, the resignation of Viral Acharya was long overdue. Like Urijit Patel, he too stands for the autonomy of the RBI and is an inflation hawk, which is contrary to the objectives of the meddling government, ever eager to encroach upon the territory of every autonomous institution. It is said that Dr.Acharya, whose differences with the present Reserve Bank governor are well known, had put in his papers several weeks ago, but must have been asked to hold on. He returns back to his teaching job at the New York University, as the prestigious CV Starr professor of economics.

Viral Acharya has had simmering differences with the government, not just due to his conservative monetary policy stance, which he vehemently and candidly aired in the Monetary Policy Committee (MPC) meetings, but also in the matter of the government’s constant attempt to erode the independence and autonomy of the RBI. His ire was evident in his outburst in the AD Shroff Memorial lecture in October 2018, where he said that a government that does not respect the independence of the central bank ie. the RBI, invites the wrath of the financial markets, which will ignite economic fire and it will rue the day they undermined an important regulatory institution. He also said that these governments that invest in the independence of the central bank, will enjoy the love of international investors and lower cost of borrowing. He further explained the difference in goals and role of the RBI and the government, to say that while the government plays a T20 match with short term goals due to state and mid term elections, the RBI plays a test match, with long term goals, wherein it is imperative to win each session. Acharya’s stern public outburst, which gave homilies and sermons to the government in this lecture did not go down well with the government, whose senior bureaucrats thereafter actually taunted him with sarcastic tweets. It was clear then itself that Viral Acharya’s days in the RBI are numbered.

After the resignation of Urijit Patel and the appointment of Shaktikanta Das, as the RBI governor, the differences of Viral Acharya with the government continued. His differences now were directly with the Reserve Bank governor, who was clearly the government’s man, unmindful of the need to protect the independence of the RBI. He had differences with Mr.Das in the meeting of the MPC in April 2019, wherein they had differing views. on emerging issues driving monetary policy, in the matter of their contrasting assessment of fiscal deficit and the likely course for interest rates. While Acharya, like Shaktikanta Das voted for an interest rate cut, he however aired his concerns on fiscal deficit slippages, which could disrupt government finances, which Mr. Das did not agree with. Acharya rightly saw fiscal slippages as a direct threat to inflation control in India. Yet another point of sharp difference between the two relates to borrowings by government undertakings, which Viral Acharya says must be included to determine the borrowing limits of the government, which Shaktikanta Das rejected saying that since government companies have their own revenue streams, their debt must be not added to the government debt, ignoring the fact that when they default in their repayment, it is the government that finally pays it.

Let us keep individuals aside and look at the institution, which is what matters. The resignation of Viral Acharya must be seen as a further success of the government in encroaching upon the Reserve Bank’s authority. A worthy replacement will soon be found for him, but with a regime that clearly undermines the statutory independence of bodies like the RBI, there will be no replacement for its eroded authority. With Acharya’s departure, and with political appointees on the board of the Reserve Bank, its taming is done and you can expect the RBI to now obediently toe the government line, which is not good for India. The autonomy and independence of the Reserve Bank matters for our country not just for its professional expertise and wisdom, but to also keep a check on government policies, which often sacrifice prudence.

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