Viral Acharya’s resignation as Deputy Governor of the Reserve Bank of India, while unfortunate, is not really a surprise. There are two reasons for this.
First, that thundering speech he delivered as the A.D. Shroff Memorial Lecture on October 26, 2018 where he signed off with the statement: “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...”
Mr. Acharya may have merely spoken what his then boss, Urjit Patel, wanted him to or he may have been disturbed enough to voice his own thoughts, of course with Mr. Patel’s prior nod. But the fact is that he had crossed a line in the delicate balance between the central bank and the government. And he had to pay the price for it, only the timing was uncertain.
Second, his position turned weak after Mr. Patel resigned in December last. Not only was Mr. Acharya known to be a confidante of Mr. Patel, he was also a fellow monetary policy hawk and was handpicked by the former Governor to the post he has now resigned from.
That said, Mr. Acharya’s resignation is sad because it robs the central bank of an outsider’s perspective. His hardline monetary policy stance would have been a valuable counterpoint now when the central bank is more tuned to an accommodative stance.
Mr. Acharya’s exit is bound to restart the debate over picking foreign-trained economists for top positions in governance. He would be the third such high-profile economist in recent times — after Raghuram Rajan and Urjit Patel — to exit his role under circumstances that are not normal.
There are those who believe that it would be better to back talent from within the RBI and the government as they have a better understanding of factors that are uniquely Indian.
Indeed, some of the most successful central bankers in recent times have been either career officers of the RBI or bureaucrats. S. Venkitaramanan, Y.V. Reddy and Duvvuri Subbarao were bureaucrats in their earlier avatar. Another accomplished governor, C. Rangarajan, was an academic. The legendary S.S. Tarapore was a career central banker and so were Usha Thorat and Shyamala Gopinath who had notable tenures as deputy governors.
Thus, a clear frontrunner to succeed Mr. Acharya will be Michael Patra, executive director, and a member of the Monetary Policy Committee. Mr. Patra is a career RBI officer and is as conservative as they come in Mint Street. Appointing him will mean a seamless transition, in every sense of the phrase.
