RBI: A REBEL’S EXIT
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