Viral Acharya, the youngest deputy governor of the Reserve Bank of India, on Monday, 24 June, confirmed that he had quit his role six months before the end of his tenure.
The central bank confirmed the development in a statement, stating that Acharya had decided to resign due to “unavoidable personal circumstances” and had submitted his resignation letter a few weeks ago.
Now 45 years old, Acharya had joined the RBI on 23 January 2017, meaning that his term was due to end on 20 January 2020, reported BloombergQuint. He had replaced Urjit Patel, who had taken over as governor in September 2016.
According to Business Standard, Acharya is returning to New York University's Stern School of Business (NYU Stern) in August, as CV Starr Professor of Economics.
From Academia to Financial Regulation
Before joining the central bank, Acharya had ample experience in the education sector, as a professor of economics at the New York University’s Stern School of Business, CNBC-TV18 reported.
Before NYU, Acharya spent seven years at London Business School, where he was also the Academic Director of the Coller Institute of Private Equity.
Himself a doctorate student of the same college, Acharya has co-authored multiple financial and banking papers, as well as reports, along with former RBI governor Raghuram Rajan.
Acharya is an alumnus of Indian Institute of Technology - Mumbai, where in 1995, he had completed his graduation in Computer Technology.
Before joining RBI, Acharya was on the advisory scientific committee of European Systemic Risk Board (ESRB), the economic advisory committee of the Financial Industry Regulation Authority (FINRA) and the advisory committee of Financial Sector Legislative Reforms Commission (FSLRC) of India.
He was also part of the International Advisory Board of the Securities and Exchange Board of India (Sebi), the CNBC-TV18 report said.
Batting for RBI’s Autonomy
Acharya was reportedly close to Urijit Patel. In a speech in 2018, Acharya batted for the RBI's autonomy, urging the government to respect the independence of the central bank. He also gave the example of Argentina's central bank governor, who resigned after the government raided the central bank’s balance sheet, reported BloombergQuint.
Many had seen this as Acharya voicing concerns on behalf of the then governor Urjit Patel, who eventually quit a few months later, a Livemint report said.
According to CNBC-TV18, this speech created a rift between RBI and the government, possibly leading to Patel’s resignation.
After Patel resigned and Shaktikanta Das took over as the governor, Acharya retained his stance, and two out of three times, voted against the rate cuts by the Monetary Policy Committee, the BloombergQuint report said. His views have been seen as in sharp contrast to Das'.
At the RBI, Acharya played a significant role in designing the new prompt corrective action framework and was in charge of the Monetary Policy and Research cluster, according to the report.
The Reported Differences With Das
Several reports suggest that Acharya recently had differences with the central bank governor Shaktikanta Das over the monetary policy which was announced on 4 April, according to minutes released by the bank.
While Das had advocated a repo rate cut, Acharya had reportedly advised against it owing to high inflation.
According to PTI, Acharya and Das seemed to be on completely different pages on the fiscal deficit front, with the departing technocrat flagging it as a concern and the governor underlining his optimism on the same, show the minutes of the last policy meeting.
While Das was sanguine on government walking the fiscal prudence path – which was missed three out of the five budgets of the Modi government – Acharya, a trained economist who teaches the subject, pointed to the fiscal slippages as a worry.
As per the minutes released last week, Acharya acknowledged that the consolidated fiscal deficit of the Centre and the states has gone down since 2013, but flagged fiscal slippages amidst missing tax collection targets and falling growth rates as an upside risk to inflation estimates.
According to Acharya, this was primarily due to public sector borrowing requirements, which appropriately accounted for extra-budgetary resources and other off-balance sheet borrowings by the Centre and the states.
Public sector borrowings have now reached between 8 and 9 percent of GDP, a level which was last seen in 2013, during the taper tantrums of the US Fed, Acharya argued, as per the minutes of the 6 June policy meeting wherein despite his concerns Acharya chose to go with the majority view to cut rate by 25 bps to a nine-year low level of 5.75 percent.
But the minutes gave ample indication that he was not convinced with the arguments for the third successive rate cut.
Das, on the other hand, argued that several public sector units have their own revenue streams to service their debt and thus can take care of their liabilities.
"Borrowings by public sector enterprises are mostly for capex. Hence, such borrowings should be viewed differently," the governor argued.
But Acharya explained that the rise in borrowings by public sector units reflect a "structural pattern" of greater government spending and not just cyclical such as due to weak tax collections from low growth.
"Correct economic measurement of the fiscal slippages should factor in the implications of rising public sector borrowings rather than rely solely on the consolidated fiscal deficit figures," Acharya argued.
Acharya said high public sector borrowing impairs monetary policy transmission due to the crowding-out effect on market financing through public bonds and on bank deposits through small savings which continue to offer rates that are significantly higher than market yields.
"This channel bites particularly when the domestic savings rate is on a decline and increases the economy's reliance on external sources of funding," he underlined.
It is not known as yet who will succeed Acharya, but the RBI is expected to look for an external candidate since monetary policy is not the domain of the current DGs, an RBI board member told Livemint.
(With inputs from PTI, CNBC-TV18, Livemint, Business Standard and BloombergQuint.)
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