Reserve Bank of India (RBI) Deputy Governor Viral V Acharya, a strong votary of the central bank’s independence and seen as having differed with Governor Shaktikanta Das on the inflation trajectory, growth prospects and policy rates, has resigned from his post, a little over six months before his term was scheduled to end.
Confirming his resignation, the RBI said, “A few weeks ago, 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 July 23, 2019.”
Though Acharya put in his papers “weeks ago”, the RBI is yet to take a decision on his release. “Consequential action arising from his letter is under consideration of the competent authority,” the central bank said in a statement Monday.
Acharya, 45, joined the RBI in January 2017 and was its youngest Deputy Governor, post economic liberalisation, in charge of the monetary policy department. He had differed with Governor Das on inflation issues and repo rate reduction in monetary policy reviews this year. Acharya, who will be returning to New York University as CV Starr Professor of Economics, was not expecting another term as he had supported former Governor Urjit Patel in the RBI’s feud with the Centre on several issues in late 2018, said a top-level source.
This is the second high profile resignation in the last six months at the RBI. In December 2018, Governor Patel had resigned nearly nine months before the end of his term over differences with the government. The RBI is now left with three Deputy Governors N S Viswanathan, B P Kanungo and M K Jain. And with Viswanathan’s term ending next month, two Deputy Governor posts will be vacant.
On October 26, 2018, differences between the RBI and the government came out in the open when Acharya, in a stinging criticism, reminded the government about the need for an independent central bank, warning that “governments that do not respect central bank 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”.
Acharya’s remarks came after the government reportedly issued directives to the central bank under Section 7 of the RBI Act — a provision under which the government can give directions to the RBI to take certain actions “in the public interest”.
Then RBI Governor Patel had differed with the government on several issues, including transferring surplus to the government, more credit flow to small units, easing of curbs on public sector banks and funding support to the NBFC sector.
Acharya had sided with Patel during his tussle with the government. Patel, who was Deputy Governor in charge of the monetary policy department before becoming Governor, quit on December 10, 2018. Though speculation was then rife that Acharya would follow suit, he continued in the RBI.
Acharya, who remained vocal on many issues involving the RBI, differed with Governor Das in the February monetary policy review. “I remain concerned about the elevated level of inflation and fiscal implications of sustained food deflation and lack of adequate and sustained downward adjustment in household inflation expectations over the past 12 months,” Acharya said while voting against a rate cut in the February policy.
However, taking a dovish stance and voting for a rate cut, Das said the overall food outlook remains benign and the headline inflation one-year ahead is projected to remain below the target level of 4 per cent.
In the April policy, Acharya and Das differed again in their views on inflation and growth. While Governor Das argued for focussing on economic growth with a repo rate cut, Acharya cautioned against another rate cut in the wake of high inflation excluding food and fuel. The six-member Monetary Policy Committee (MPC) decided to reduce the policy repo rate by 25 basis points to 6 per cent in a 4-2 majority decision.
Exit adds to challenge
While Acharya’s departure is not a complete surprise, given that the friction between him and the government on issues related to RBI’s independence have surfaced on multiple occasions, the composition of the monetary policy committee will progressively turn more dovish as Acharya was on the more hawkish side. Acharya joins the list of technocrats in economic policy-making who have chosen to quit after disagreeing with the government.
Acharya completed his BTech in Computer Science and Engineering from IIT Mumbai in 1995 and his PhD in finance from NYU-Stern in 2001. Before Stern, he was at London Business School (2001-2008), the Academic Director of the Coller Institute of Private Equity at LBS (2007-09) and a Senior Houblon-Normal Research Fellow at the Bank of England (Summer 2008).
Acharya, who joined New York University’s Stern School of Business in September 2008, is now CV Starr Professor of Economics. He is expected to return to the Stern School in August this year.
According to NYU, his primary research interest is in the theoretical and empirical analysis of systemic risk of the financial sector, its regulation and its genesis in government-induced distortions, an inquiry that cuts across several other strands of research – credit risk and liquidity risk, their interactions and agency-theoretic foundations, as well as their general equilibrium consequences.
Acharya also co-authored research papers with former RBI Governor Raghuram Rajan. Once when his co-passenger in a flight called him ‘Raghu Rajan’ after seeing his notes containing words like ‘crisis’ and ‘banks’, he remarked, “that was the day when I realised if I have Raghu (Raghuram Rajan) as my role model and even I hit 5 per cent or 10 per cent of that, I can easily pass off as a poor man’s Raghu Rajan.”