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, making it the second high profile resignation in the past six months at the Reserve Bank of India (RBI).
Acharya will return to New York University Stern School of Business in August, instead of February 2020 as was earlier scheduled, where he will take over as CV Starr Professor of Economics, Business Standard reported.
Quoting sources, The Indian Express reported that Acharya was not expecting his term to be renewed for a second time in any case.
In December, governor Urjit Patel resigned nearly nine months before the end of his schedule term over ‘differences with the government’.
The RBI is now left with three deputy governors – NS Vishwanathan, BP Kanungo and MK Jain.
WHO WAS ACHARYA
Acharya had joined the central bank on 23 January last year after Patel was elevated to the post of governor in September 2016. The youngest to be appointed to the post after liberalisation, Acharya was brought in as deputy governor towards the end of 2016 for a term of three years.
Acharya, a New York University economics professor, had once called himself the ‘poor man’s Raghuram Rajan’.
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.
WHAT WENT DOWN
Quoting minutes from the June meeting, several reports suggested that Acharya recently had differences with RBI governor Shaktikanta Das over the monetary policy which was announced on 4 April.
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 amid 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 of his mind, which was not convinced with the arguments for the third successive rate cut.
Das, on the other hand, argued that several public sector units which 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.
WHAT THE RBI SAYS
Following reports, the RBI released a statement saying that consequential action arising from Acharya’s letter is under consideration by the competent authority.
“Reports have appeared in certain sections of the media that Dr Viral V Acharya, Deputy Governor of the Reserve Bank of India (RBI) has resigned from his post. In this connection it is stated as follows:
A few weeks ago, Dr Acharya submitted a letter to the RBI informing that due to unavoidable personal circumstances, he is unable to continue his term as a Deputy Governor of the RBI beyond 23 July, 2019. Consequential action arising from his letter is under consideration of the Competent Authority,” the statement read.
WHAT THE OPPOSITION SAYS
Soon after reports of Acharya’s resignation emerged, Congress raised doubts about whether Achraya’s “abrupt decision” had something to do with his stance on RBI’s independence.
Congress spokesperson Randeep Surjewala also took to Twitter to hit out at the BJP-led NDA government, alleging ‘economic manhandling.’
Tehseen Poonawalla, meanwhile, called it a case of “collapsing economy”.
(With inputs from PTI, The Indian Express and Business Standard)
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