Viral Acharya resigns from RBI: Why deputy governor’s untimely exit will be watched for implications on monetary policy

On Monday, Business Standard  reported that one of Shaktikanta Das’ deputies at Reserve Bank of India (RBI), Viral Acharya, has resigned from his post six months before his term come to end. Later, an RBI statement confirmed that Acharya has indeed called it a day at the central bank. The resignation is yet to be accepted. Acharya joins the list of top technocrats– Urjit Patel and Arvind Subramanian who quit their high profile posts before term. Once again, ‘personal reasons’ have been cited for the untimely exit, leaving the world to guess and speculate about the exact trigger. Patel exited his jobs under controversial circumstances while Subramanian created controversy post-exit from a safe distance with his hard criticism on ‘draconian’ demonetisation and GDP data mismatch. Acharya entered the scene at RBI as a low profile candidate. Unlike Rajan, not many knew him prior to this post. But for sure, Acharya isn’t exiting as a low key. Acharya’s public lambastes in October last year on RBI autonomy triggered a public spat between the central bank and the government. [caption id=“attachment_6871751” align=“alignleft” width=“380”] A file photo of Viral Acharya. Reuters[/caption] Even at that point, there were intense speculations of Acharya resigning from RBI. One TV channel even flashed that he had already resigned but all that turned out to be untrue. Policy implications Acharya’s exit assumes importance given that he was the deputy in charge of monetary policy and batted for a conservative stance all through. Even when he nodded for a cut in June, it wasn’t without a strong warning on high inflationary risks and fiscal slippage. From Day one in office, Acharya presented himself as a very articulate deputy governor unlike his former boss, Urjit Patel who was a reluctant speaker. With Acharya leaving the scene, it is fairly certain to assume that there will be less resistance on rate cuts in MPC and less criticism on fiscal policies. If one looks at his recent statement closely, there were signs of Acharya’s unhappiness with certain policy approaches within the central bank and the government. In his June policy statement, Acharya quoted Ernest Hemingway from the “Old Man and the Sea: “It is better to be lucky. But I would rather be exact. Then when luck comes, you are ready.” There was also strong criticism of fiscal policies. : “There is, however, an important upside risk to RBI’s projected inflation trajectory that I wish to highlight in particular – that of fiscal slippage. Estimates of overall public sector borrowing requirement (PSBR) – which appropriately accounts for extra-budgetary resources and other off-balance sheet borrowings of central and state governments –have now reached between 8 percent and 9 percent of GDP. This is at a level similar to that in 2013 at the time of the “taper tantrum” crisis.” In the minutes of June monetary policy, Acharya had a word of caution to new Union finance minister Nirmala Sitharaman who will present her first budget on 5 July. “Would the response worsen the fiscal outlook for next year and beyond, or keep it contained through pursuit of much-needed reforms for the agricultural sector and reduction/rationalisation of other revenue expenditures?” Acharya’s untimely exit will be watched for the implications on the future course of monetary policy and RBI-government relations.