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Viral Acharya resigns as RBI Deputy Governor

The youngest deputy governor of the Indian central bank will return to New York University Stern School of Business in August.|
Updated: Jun 24, 2019, 09.26 AM IST
Acharya also served as a member of the advisory council of the RBI Academy.
Viral Acharya has resigned as a Deputy Governor of the Reserve Bank of India (RBI) six months ahead of the scheduled end of his term, Business Standard reported this morning.

The youngest deputy governor of the Indian central bank will return to New York University Stern School of Business in August, instead of February 2020, as the CV Starr Professor of Economics. He joined RBI on January 23, 2017, for a three-year term.

Acharya's discomfiture with the new RBI dispensation under Governor Shaktikanta Das was palpable. At the last money policy review meeting, he had different views on emerging issues driving monetary policy decisions for a second time in a row, making a contrasting assessment of fiscal deficit setting the likely course for interest rates over the next few bimonthly Mint Road conclaves, minutes of RBI's policy review showed.

Acharya also served as a member of the advisory council of the RBI Academy and was a member of the Academic Council of the National Institute of Securities Markets, Securities and Exchange Board of India since 2014.

“There is an important upside risk to RBI’s projected inflation trajectory that I wish to highlight in particular – that of fiscal slippage,” Acharya said at the last money policy review as per the minutes of the MPC published last Thursday.

“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,” he said.

Governor Das said the government had maintained its fiscal promise and argued that it would be a mistake to club the borrowings of state-run enterprises into that of the sovereign as they have their own revenue stream from which they could pay out. “Over the last few years, the central government has by and large followed a policy of fiscal prudence,” Das said.

“It has adhered to the fiscal deficit glide path in the last 5 years, though at a somewhat slower pace than committed earlier. Public sector borrowing includes several public sector enterprises which have their own revenue streams to service their debt and take care of their liabilities. Borrowings by such public sector enterprises are mostly for capital expenditure. Hence, such borrowings should be viewed differently.”

People familiar with the development said Acharya had put in his papers a few weeks before the last meeting of RBI’s monetary policy committee (MPC) early this month, BS reported.

Dr Acharya is said to have cited “unavoidable personal reasons” for his decision. RBI has not released any official communication on this issue till the time of filing of this report.

Dr Acharya was in charge of the Monetary Policy Department and the Department of Economic and Policy Research, among others.

“Dr Acharya’s departure is not a complete surprise, as frictions between him and the government on issues related to central bank independence had come to the fore, including in his speech titled ‘On the Importance of Independent Regulatory Institutions – The Case of the Central Bank’ delivered on 26 October 2018,” global brokerage Nomura said in a report.

It said at the margin, the composition of the MPC will likely become incrementally more dovish, as Dr Acharya stood on the more hawkish side of the policy spectrum.

“Dr Patra’s views are well known, while Sanjeev Sanyal has argued for lowering the cost of capital in the past. Other candidates could be discussed in coming days,” Nomura said.

The brokerage said Acharya’s exit may now ensure another 25 bps rate cut by RBI.

“Given our view of a likely growth disappointment relative to the RBI’s projections (RBI: 7.0% y-o-y in FY20; Nomura: 6.8%) and as we forecast inflation to remain below the target (4%), we expect the MPC to vote for another 25bp rate cut in August (resulting in a cumulative 100bp of cuts in 2019). If growth concerns escalate beyond that, either due to marked global slowdown or shadow banking crisis, we believe the MPC may agree to ease further, although not our base case currently,” it said.

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