Viral Acharya, the poor man's Raghuram Rajan steps down, ahead of term

Last Updated: Mon, Jun 24, 2019 15:41 hrs
Viral Acharya

Mumbai:Viral Acharya, the Reserve Bank of India's deputy governor has resigned on Monday. The 45 year old Professor of Economics was inducted in the Central bank as a governor on January 23, 2017, after Dr. Urjit Patel's elevation as a Governor in September 2016.

The RBI shared a note with details of his exit, soon after news of Acharya's surprise resignation and many questioning that it was six months prior to the end of his term. "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," said the note.

A New York University economics professor, Acharya called himself the "poor man's Raghuram Rajan" once. He also batted for the independence of the Central bank. His departure is surprising, considering that former Governor Dr Urjit Patel had also resigned in a similar fashion - nine months prior to the end of a term.

In October 2018 the relationship between the Centre and the RBI deepened with issues such as an increase in NPA, need to increase dividends, a spike in NPAs, and invocation of Section 7. Reports called the invocation of Section 7 as akin to a breakdown in communication between Mint Street and Finance Ministry.

It was around this time that Dr. Viral Acharya delivered a lecture, reminding how the banking regulator ought to be treated. "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 had cautioned back then.

He shared the example of Argentinian central bank governor who resigned after the country's government raided the central bank's balance sheet.

Slashing Rates:

At a time when the larger narrative has been cheaper loans to counter economic worries ranging from lack of jobs to slowing GDP, it has been Acharya who has batted for a pragmatic approach.

Since Shaktikanta Das took over as Governor, short term lending rates for commercial banks have been cut thrice and have been brought to 5.75 per cent. Acharya voted against a cut on two out of three times.

Reducing bank interest rates does offer cheaper home loans and credit cards, but they also hit earnings of savings accounts and other deposits. Acharya voted for rate cuts twice in 15 monetary policy reviews. He had opposed for  implementing a rate cut during the February and April monetary policies this year. He opined that the RBI's monetary policy committee (MPC) had to focus on ensuring inflation kept closer to a target of 4 (+/-2) percent in a durable way. This, opposed with Governor Das's stance of a repo rate cut to boost economic growth.

Acharya voted for rate cuts in June as an "insurance" against further slowdown, labelling the factors for slowdown as temporary during the June meeting. "Correct economic measurement of the fiscal slippage should factor in the implications of a rising PSBR (Public Sector Borrowing Requirement) rather than rely solely on the consolidated fiscal deficit figures," the former Deputy Governor had said.

Acharya was appointed by a Cabinet ranked Appointments Committee headed by the Prime Minister. His departuree and the consequential action from his letter is under consideration with this authority.

With the "poor man's Raghuram Rajan" gone, the RBI is left with three deputy governors- N S Vishwanathan, B P Kanungo and M K Jain.

In the meanwhile, Twitter has been curious on the reason for the untimely departure.

Here are a few thoughts:

With inputs from agencies.