RBI: A REBEL’S EXIT

India Today - - UPFRONT - —M.G. Arun

The Re­serve Bank of In­dia (RBI) deputy gover­nor Vi­ral Acharya’s res­ig­na­tion, six months be­fore his term ended, came as no sur­prise to many. His exit was con­sid­ered im­mi­nent af­ter for­mer RBI gover­nor Urjit Pa­tel left the cen­tral bank in a huff cit­ing “per­sonal rea­sons” in De­cem­ber last year af­ter a pub­lic spat with the Cen­tre over a host of is­sues, in­clud­ing the apex bank’s au­ton­omy.

Acharya, a New York Univer­sity Stern School (NYU Stern) of Business pro­fes­sor and the youngest to be­come deputy gover­nor at the RBI, mir­rored Pa­tel’s thoughts on au­ton­omy when he used the A.D. Shroff me­mo­rial lec­ture in Mum­bai on Oc­to­ber 26 last year to launch a scathing at­tack on the gov­ern­ment. “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,” he said. His in­dict­ment echoed across mar­kets and the cor­ri­dors of power. Dis­con­tent be­tween the RBI and the North Block had been brew­ing for nearly a year be­fore that, but it was this speech that changed the whole pic­ture.

Acharya, who joined

the RBI in Jan­uary 2017 for a three-year term, will re­turn to NYU Stern in Au­gust to teach eco­nom­ics. His is the third high­pro­file exit from the RBI un­der Prime Min­is­ter Naren­dra Modi’s gov­ern­ment, the first two be­ing of for­mer gover­nors Raghuram Ra­jan and Pa­tel in Modi’s previous term. He also joined the grow­ing list of econ­o­mists leav­ing the gov­ern­ment, in­clud­ing for­mer NITI Aayog vice-chair­man Arvind Pana­gariya and for­mer chief eco­nomic

ad­vi­sor Arvind Subramania­n, whose ap­par­ent rea­sons for leav­ing were less than con­vinc­ing.

What sur­prised some was the tim­ing of Acharya’s move, be­cause he seemed to have set­tled into the new RBI gover­nor Shak­tikanta Das’s team. In the past six months, since Pa­tel’s de­par­ture, Acharya chose to re­main quiet, ex­press­ing his dis­sent only through a hawk­ish stance on In­dia’s inf la­tion, choos­ing to main­tain sta­tus quo on lend­ing rates in the first two of the three meet­ings of the Mon­e­tary Pol­icy Com­mit­tee (MPC) of the cen­tral bank chaired by Das. Af­ter three rate cuts of a to­tal of 75 ba­sis points (one ba­sis point is one hun­dredth of a per­cent­age point) un­der Das, the RBI is ex­pected to make another rate cut of 25 bps in Au­gust, says re­search firm No­mura. The MPC, felt Acharya, needs to fo­cus on en­sur­ing that inflation is kept close to the tar­get of 4 per cent in a durable fash­ion and ar­gued that at least a part of the re­cent growth slow­down was due to tem­po­rary fac­tors. He also cau­tioned against fis­cal risks that were build­ing up, in­clud­ing pub­lic sec­tor bor­row­ing re­quire­ments that reached be­tween 8-9 per cent of GDP.

His exit also comes at a time when the Bi­mal Jalan com­mit­tee con­sti­tuted by the RBI is set to rec­om­mend ap­pro­pri­ate re­serves that the cen­tral bank should main­tain and div­i­dends it should pay to the gov­ern­ment, an is­sue which was another bone of con­tention be­tween the previous gover­nor and the Cen­tre.

As on June 30, 2018, the RBI had a con­tin­gency fund of Rs 2.3 lakh crore, while un­re­alised gain (de­scribed as cur­rency and gold reval­u­a­tion account) stood at Rs 5.3 lakh crore. Acharya had re­but­ted the gov­ern­ment’s de­mand for funds, stat­ing that hav­ing ad­e­quate re­serves in­su­lated the RBI from any losses that could arise from its op­er­a­tions and that the free­dom to main­tain such sur­plus was an im­por­tant part of the cen­tral bank’s in­de­pen­dence from the gov­ern­ment. With Acharya’s exit, the RBI has lost the lone con­ser­va­tive voice at the cen­tral bank, mak­ing the com­po­si­tion of the MPC much more dovish in na­ture.

HIS IS THE THIRD HIGH­PRO­FILE EXIT FROM THE RBI UN­DER THE MODI GOV­ERN­MENT AF­TER THOSE OF GOVER­NORS RAGHURAM RA­JAN AND URJIT PA­TEL

LONE CRU­SADER With Vi­ral Acharya’s exit, the RBI loses its only con­ser­va­tive voice

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