Viral Acharya's resignation: All's not well with government and economists
Viral Acharya had vouched for the independence and autonomy of the RBI, and had attacked the government on the same issue. In a fiery speech, he went on to say that ‘governments that do not respect the central bank’s independence would incur the wrath of financial markets and ignite economic fire.’
It was no surprise that Reserve Bank of India (RBI) deputy governor Viral V Acharya’s resignation hogged the news headlines today. A vocal critic of the Modi government’s economic policies, he was the youngest deputy governor RBI had since 1990.
Following the media brouhaha, the RBI has released a statement, saying that ‘Acharya had written to the RBI a few weeks ago that due to unavoidable personal circumstances, he won’t be continuing his term beyond July 23, 2019.’ The statement added that “consequential action arising from his letter is under consideration of the Competent Authority”.
With the premature resignation, six months before his official term ends on January 2020, Acharya has followed the list of economists who have resigned without completing their official terms, in the recent years. Urjit Patel had resigned from the RBI governor’s post last December, becoming the first RBI governor to put down his papers before officially ending his term on September 2019. Arvind Subramaninan had quit the post of Chief Economic Advisor in June 2018, due to family commitments. Arvind Panagariya had resigned as NITI Aayog vice chairman in August 2017.
Although, all of them had cited personal reasons for quitting the high profile jobs, their differences with the government were glaring. Arvind Subramanian had called demonetisation a “draconian move”, months after his resignation. Questioning the 7 per cent growth rate of India, he had recently stated that the real growth rate would be around a significantly lower 4.5 per cent. Urjit Patel’s resignation was also seen from the perspective of his rift with the government on lending and inflation related issues.
The same is the case with Viral Acharya, who had warned against the repo rate cuts, going against the stand of the RBI governor Shaktikanta Das, who advocated for rate cuts.
Talking to Asiaville, economist CP Chandrasekhar said that high interest rates suit international finance and rentier interests, whereas low interest rates are good for productive activity. “But the point is the reason why the government is doing it, or the government’s representatives in the RBI board doing it, is different. That is because the government doesn’t want to undertake too much expenditures of its own, because it’s committed to fiscal deficit,” Chandrasekhar said.
“Essentially, this means that instead of the RBI advising the government on what’s the best thing to do, the government will be deciding what the RBI should do,” he added.
A month before Patel’s resignation, Acharya had vouched for the independence and autonomy of the RBI, and had attacked the government on the same issue. In a fiery speech, he went on to say that ‘governments that do not respect the central bank’s independence would incur the wrath of financial markets and ignite economic fire.’
However, Chandrasekhar was critical of the idea of giving absolute independence to the RBI.
“The notion of an independent central bank is anti-democratic,” he said. “It says you can have a bunch of unelected so-called technocrats or experts who should be given full freedom to do whatever they want.”
Nevertheless, it appears that RBI and government are not on the same page on various policy related decisions. Acharya had completed his engineering degree from IIT Bombay before acquiring a doctorate in finance from New York University. Although reports are there that Acharya decided to quit as he wants to go back to NYU to continue his academics, there are enough reasons to suspect that all is not well with the government and economists.