Viral Acharya: A strong advocate of RBI’s autonomy

Mumbai: RBI Deputy Governor Viral Acharya, who was in charge of the monetary policy department, has resigned six months before the scheduled end of his term, sources said Monday

This is the second high profile resignation in the past six months at the Reserve Bank of India (RBI).

In December, governor Urjit Patel resigned nearly nine months before the end of his scheduled term over differences with the government.

Acharya, a New York University economics professor who once called himself the ‘poor man’s Raghuram Rajan’, was appointed for three years.

He took over at a time when the central bank was facing criticism for repeated changes in the rules related to deposit and withdrawal of money, post-demonetisation.

Viral Acharya was a strong believer in the central banks’ independence and autonomy, which he considered crucial for economic progress and financial stability, and had even warned that any government undermining their monetary authorities would face the wrath of financial markets and economic fires.

Acharya had said many nations are seeing the central bank independence being compromised and asserted that independent central bankers will remain undeterred.

The Reserve Bank has gone through a tumultuous time in the past two and half years, starting with a change in policymaking where rate-setting shifted to a six-member panel that experts commended as a step in the right direction, to the surprise resignation of Governor Urjit Patel in December 2018.

Speculation about Acharya’s exit had started on the day of his boss resignation, forcing the RBI to deny it then.

Acharya went public with his thinking on the sensitive topic of central bank independence during a speech at the peak of the run-ins between the Mint Road and the Government that culminated in Patel’s departure on 10 December last which included specific mentions of points of differences like government eying RBIs capital buffers.

Citing an Argentinian example, where governor Martin Redrados resignation over differences with the government was not taken kindly, Acharya had warned of the consequences that await.

Governments that do not respect central banks independence will sooner or later incur the wrath of financial markets, ignite economic fires, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans, he had said in the 26 October 2018 speech delivered in Mumbai.

Acharya, who will return to the New York University’s Stern Business School in August instead of in 2020, felt the RBI has made good progress in earning its independence, pointing to the formation of the rate-setting monetary policy committee.

In the speech that was delivered over a month before Patel’s resignation was made public and the subsequent appointment of retired career bureaucrat Shaktikanta Das as the governor, Acharya had said that appointing a non- technocrat to a key position is among the ways in which the independence is compromised.

Appointing government (or government-affiliated) officials rather than technocrats to key central bank positions, such as governor, and more generally, senior management, is among the ways the institutional autonomy can be undermined, he had said.

Acharya, who was called as the poor man’s Rajan, over the many similarities with the former Governor Raghuram Rajan who also left RBI against his wishes to continue, had also warned of a talent crisis at a central bank if its independence is seen to be compromised.

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