Speculation around Acharya’s likely resignation began in December 2018
RBI deputy governor Viral Acharya’s decision to step down by July 23, six months before his term ends in January 2020, has led to conjectures that the friction between the government and the central bank that came to the fore during the last leg of former governor Urjit Patel’s tenure, hasn’t really been attenuated.
Acharya’s move to quit citing “unavoidable personal circumstances” — the RBI confirmed this in a statement on Monday — also comes at a time when a few judicial decisions are seen to have circumscribed the central bank’s regulatory ‘adventures’. The current governor, Shaktikanta Das, is seen to be having a much more nuanced approach than his two immediate predecessors on how the central bank could preserve its autonomy while being mindful of the concerns of the government.
The Supreme Court on April 3 struck down the RBI’s contentious circular that sought to bind defaulting companies to a tight deadline (180 days since the first day of default) to find a resolution plan along with lenders and avoid being taken to the insolvency courts.
Also, on the day the exit of Acharya from the RBI was reported, a committee reviewing the central bank’s economic capital framework delayed its report to possibly a day after the July 5 central Budget. The Centre is apparently hinging on higher transfers from the RBI’s ‘surplus capital’ to bridge the yawning fiscal deficit.
Speculation around Acharya’s likely resignation began in December 2018, soon after then governor Urjit Patel resigned from his position and was replaced by Das.
Acharya was seen as Patel’s ally in his attempt to protect the RBI’s autonomy after the institution came into conflict with the central government on a host of issues, ranging from the transfer of excess reserves to the prompt corrective action (PCA) framework for banks.
While the government did not comment on Acharya’s move, the Congress on Monday wondered whether his “abrupt decision” to resign could have anything to do with his stance on reaffirming the RBI’s independence from the Modi government.
On October 26, 2018 — much before former Patel’s quit on December 10 —Acharya, a former teacher at New York University’s Stern School of Business, had put up a steadfast defence of the RBI’s independence in a speech delivered here. He had warned that governments that do not respect the central banks’ independence would “sooner or later incur the wrath of financial markets” and come to rue their stance. He also said appointing government (or government-affiliated) officials rather than technocrats to key central bank positions, such as governor, was among the ways the institutional autonomy could be undermined. Das, a former secretary to the government, had held several key positions in the finance ministry but might not still fit into the technocrat mould.
Indeed, it was Acharya’s speech on October 26, 2018, that brought the government-RBI tussle into the public domain. His reference to the impact of a forced transfer of reserves from the Argentine central bank to the government of the day in 2010 irked the government.
More recently, Acharya has also differed with Das’s assessment of macroeconomic developments and the course that monetary policy should take under the circumstances. He has been one of two dissenters against two of the three repo rate cuts effected by the monetary policy committee (MPC) in 2019.
Though he voted in favour of a rate cut in the June policy, Acharya highlighted fiscal risks to the inflation trajectory in the minutes of the MPC meeting. He wrote that estimates of overall public sector borrowing requirement (PSBR) — which appropriately accounts for extra-budgetary resources and other off-balance sheet borrowings of central and state governments — have now reached 8-9% of gross domestic product (GDP), a level similar to that in 2013. “The rise in PSBR in fact reflects a structural pattern of greater government expenditures and not just cyclical (such as due to weak tax collections from low growth). In other words, there is a significant aggregate demand push linked to government expenditure that needs to be recognised as a source of inflation…” Acharya observed.
On the contrary, Das refused to recognise borrowings by public-sector enterprises (PSEs) as a component of government borrowing. “Borrowings by such public sector enterprises are mostly for capital expenditure. Hence, such borrowings should be viewed differently,” Das wrote.