The abrupt resignation of Reserve Bank of India (RBI) deputy governor Viral Acharya nearly six months prior to the end of his term has raised doubts yet again over the independence of the country’s central bank, which in the last couple of years has witnessed run-ins with the government and other high-profile exits.
Acharya joined the RBI as a deputy governor in January 2017, while Urjit Patel was the governor, and was in charge of monetary policy, which decides on interest rates, among other functions. At the age of 42, he became the youngest deputy governor and was supposed to serve a three-year term.
The RBI made the announcement of his resignation on Monday, but it was submitted weeks ago and Acharya will remain in office until July 23. Before joining the RBI, Acharya was the CV Starr Professor of Economics at New York University’s Stern School of Business. He has been on leave from the university and is likely to rejoin.
As Patel was a reticent personality, Acharya became the public face of the RBI, communicating its stand on a host of issues. Acharya sparked controversy in October last year when he made public his views on differences between the RBI and the government. He made a powerful speech at a function lamenting that Prime Minister Narendra Modi’s government was not respecting the central bank’s independence and warning of disastrous consequences.
Using a cricket analogy, he compared the government’s economic policies to a T20 match (a short format of the game lasting a few hours), in contrast to the long-term planning of a central bank, which he called a Test match (which lasts five days). This ruffled many feathers in the government.
When Patel resigned last December there were strong rumors that Acharya might follow suit. He stayed on, but continued to express hawkish views on non-performing assets and under-performing banks.
During the RBI’s monetary-policy meeting on April 4, Acharya opposed governor Shaktikanta Das’s plan for a rate cut. The central bank ultimately reduced interest rates based on a 4-2 decision, with another member, Chetan Ghate, also opposing it. The RBI has so far announced three consecutive rate cuts this year.
Patel’s predecessor, Raghuram Rajan, had a difference of opinion with the finance minister at the time, Arun Jaitley, and Modi. Rajan became the first RBI governor in two decades who was not offered a second term.
During Patel’s tenure, the Indian government announced demonetization of high-value currency notes. Initially it was believed that the RBI was in favor of the disruptive move. But the minutes of an RBI meeting eventually revealed that the central bank had warned of its short-term effects and opined that it would not help curb black money.
The prime minister recently met with 40 economists and sectoral experts during a session organized by government think-tank Niti Ayog titled “Economic Policy – The Road Ahead.” It was attended by Commerce and Industry Minister Piyush Goyal and Minister of State (independent charge) for Statistics and Program Implementation Rao Inderjeet Singh.
Raising eyebrows was the fact that Finance Minister Nirmala Sitharaman, who will be presenting the government’s full budget on July 5, did not attend. She is supposed to lead all economic issues. Some observers suggested her absence shows the prime minister will be leading, and she is likely to be a figurehead.