India: Acharya differed with government on key issues

  • RBI Deputy Governor Viral Acharya’s resignation on 24 Jun 19 did not surprise many. Market sources said it was expected, given his views on the Reserve Bank of India’s (RBI) position in the economy.
  • Acharya’s exit from the RBI top ranks was being speculated upon since 2018, when he took on the government with a hard-hitting speech on the need to ensure the central bank’s independence.
  • In fact, the most recent round of tension between the government and the RBI culminating in the abrupt resignation of former RBI Governor Urjit Patel, was signalled in a speech by Acharya after the government sought consultations with the RBI under Section 7 (a provision rarely used) of the RBI Act, which allows the government to give directions to the central bank in public interest.
  • On 24 Jun 19, the RBI said Acharya had resigned for personal reasons.
  • He has voted for rate cuts only twice in 15 monetary policy reviews. He opposed rate cut even in the Feb 19 and Apr 19 monetary policies.
  • Among the most prominent and controversial issues between RBI and government where he was involved included the demand that the central bank shell out more dividend, which was strongly opposed by Acharya.
  • The final report of the committee set up by jointly by the RBI and the government to examine the RBI’s Economic Capital Framework (ECF) is expected in the week ending 30 Jun 19, while official sources in New Delhi said there is lack of consensus in the ECF panel over the transfer of capital and reserves to the government.
  • Acharya’s view has been that the RBI’s monetary policy committee (MPC) needs to focus on ensuring that inflation is kept close to the target of 4 (+/-2) % in a durable way countering the Governor Das’s view for a repo rate cut in view of the economic slowdown.
  • Acharya argued that at least a part of the recent growth slowdown is due to temporary factors and at the Jun 19, Acharya voted for a cut in rates as an “insurance” against a further slowdown.
  • Flagging the risks of fiscal slippage in his last MPC meeting earlier in Jun 19, Acharya cautioned against any further soft approach by the RBI.
  • He noted that overall public sector borrowing – which account for extra-budgetary resources and other off-balance sheet borrowings of central and state governments a “have now reached between 8-9% of GDP.” He was of the view that this was at a level similar to that in 2013 at the time of the “taper tantrum” crisis.

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