Another exit, more questions
Viral Acharya, deputy governor of the RBI, handed in his resignation last week, six months before his normal three-year term would have got over. Seen as a contrarian voice in the apex bank’s Monetary Policy Committee (MPC), Acharya will be returning to academia, and join the New York Stern School of Business to teach economics.
Predictably, his exit has once again raised the issue of the independence of the apex bank, coming as it does close on the heels of the resignation of RBI Governor Urjit Patel in December last year. Patel and Acharya were often on the same side on issues relating to the autonomy of the central bank, and in resisting the government’s bid to relax the Restrictive Prompt Corrective Action framework for 11 state-owned banks. Many in fact expected Acharya to quit soon after Patel left.
Deputy Governor Acharya saw a close relationship between monetary policy and financial stability, and often dissented against lowering interest rates at a time when inflation was heating up the markets and excessive liquidity was swamping the economy via public spending. In monetary policymaking, when the RBI was under pressure to cut rates to crank up growth, Acharya often was the lone dissenter in MPC meetings.
As an outsider, he had no qualms about speaking up for the central bank’s independence. Last October, he famously warned that governments that do not respect the RBI’s 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”. It is regrettable that a plain-speaking voice found it necessary to quit. Dissent and healthy debate are an important element of policymaking bodies such as the RBI. The RBI has performed yeoman service in the past in protecting the financial system from upheaval. The latest exit is obviously a protest against all what the central bank has stood for. The government would do well to take note of these warning signs.