Viral Acharya was a strong believer in the central bank's 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. On Monday, news emerged Acharya had stepped down as deputy governor of the Reserve Bank of India.
Acharya, who has quit six months before his three-year term as the deputy governor in-charge of the monetary policy department ends, had said many nations are seeing the central bank's independence being compromised and asserted that independent central bankers will remain undeterred.
The Reserve Bank of India has gone through a tumultuous time in the past two-and-half years, starting with a change in policy making 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 Patel's resignation, forcing the RBI to deny it then.
Acharya went public with his thinking on the sensitive topic of central banks' independence during a speech at the peak of the run-ins between Mint Road and the Narendra Modi government that culminated in Patel's departure in December 10 last, which included specific mentions of points of difference like the government eyeing RBI's capital buffers.
Citing an Argentinian example, where governor Martin Redrados resigned over differences with the government, 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 lifespans,” he had said in the October 26, 2018, speech delivered in Mumbai.
Acharya had further said that while the theme of the RBI's independence is of great sensitivity, it is of even greater importance to our economic prospects.
Acharya, who will return to New York University's Stern Business School in August instead of 2020, felt the RBI has made good progress in earning its independence, pointing to the formation of the rate-setting monetary policy committee.
To secure greater financial and macroeconomic stability, these efforts (like MPC) need to be extended to effective independence for the Reserve Bank of India in its regulatory and supervisory powers over public sector banks, its balance-sheet strength and its regulatory scope.
“Such an endeavour would be a true inclusive reform for the future of our economy,” Acharya had said in the same speech.
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,” Acharya had said.
“Others may include a steady attrition and erosion of statutory powers of central bank, blocking a rules-based approach and setting up parallel regulatory agencies with weaker statutory powers,” Acharya had said.
Acharya was called as the “poor man's Raghuram Rajan”, over the many similarities with the former governor Raghuram Rajan who also left RBI against his wishes to continue. Acharya had also warned of a talent crisis at a central bank if its independence is seen to be compromised.
“When the governance of the central bank is undermined, it is unlikely to attract or be able to retain the brightest minds that thrive on the ability to debate freely, think independently and effect changes; attrition of central bank powers results in attrition of its human capital and deterioration of its efficiency and expertise over time,” Acharya had said.