By Ashwini Agarwal
Viral Acharya, the deputy governor of the RBI, has resigned months before his term was to end. Acharya was instrumental in bringing to public notice the feud between the government and the RBI over transferring the surplus with the RBI to the government, more credit flow to small units through easing of norms, easing of curbs on public sector banks and funding support to the NBFC sector. It was his fiery speech that had informed the public how the government was putting pressure on the RBI to take certain decisions which the apex bank was not willing to. It also showed how the independence of the RBI was being undermined.
Acharya had supported the then Governor Urijit Patel. But when he did not resign along with Patel, it was thought that he would continue till the end of his term. But in recent months, Achayra has differed with the Shaktikanta Das on issues like inflation and the reduction of repo rates in the monetary policy reviews. Since Acharya felt that the bank was toeing the government line and was being too accommodative, he put in his papers. He is expected to return to his teaching job in the US.
The RBI is an independent institution which is expected to take policy decisions on its reading of the economy and the fiscal policies being followed by the government. If the government puts pressure on the regulator and forces it to toe a particular line, the very purpose of having it is defeated. All the functions of the RBI can then be assigned to officials in the finance ministry. Having said that, it should also be highlighted that more than 80 percent of the economists polled before successive monetary policy meets in the last six months had said that the apex bank should reduce rates as inflation was in check and growth was not happening. Hence, Acharyaâs immediate trigger for resigning is not valid.
But Acharya did something very important. His speech was instrumental in preventing the transfer of the RBI surplus to the government account, which in turn prevented profligacy by the government ahead of the general elections. RBI surplus is not meant to be used in a cavalier manner. It is the cushion that helps the RBI deal with extraordinary situations in the monetary market and in times of severe economic depression. Acharya will be remembered for preventing the political use of an economic asset.