Deputy Governor Viral Acharya resigns: The plain-speaking outsider at RBI

Viral Acharya started his June monetary policy minutes quoting Santiago, the old fisherman in, The Old Man and the Sea. 

This immortal character created by Ernest Hemingway became a symbol of reputation, dignity and pride in what one does. Acharya gave enough hint that he had chosen his dignity.

As a hawk, he called the shots when the monetary policy committee was chaired by Urjit Patel, a wise 'owl'.

Acharya, deputy governor in charge of the monetary policy, explained his position in the June policy minutes — there should be headroom left to cut rates to help revive growth with monetary accommodation once the economy has cooled off and twin deficits reined in. 

For fiscal slippages of 50 basis points or more and oil prices rising 10 per cent, “leave no space to cut the policy rate below 6 per cent", he said. 

Acharya, therefore, reluctantly gave his nod for a rate cut in the June policy. 

With Acharya's departure, the Reserve Bank of India (RBI), will lose a prominent plain-speaking outsider. And plain speaking is what Acharya did very well, mostly at the behest of Patel, who stepped down as RBI governor in December last year. 

Acharya famously had said in October last year that governments which do not respect the central bank's 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".

A strong votary of the central bank's independence, Acharya likened taking reserves from the central bank to 'raiding' the balance sheet.

Former RBI governor Bimal Jalan was expected to submit his report on the issue this week, but this has been now postponed to later in July after the presentation of the Budget.

Acharya will leave the RBI on July 23, six months before the scheduled end of his three-year term in the office on January 20 next year.

When Acharya joined, he came with a lot of fresh ideas. But only a few could be implemented, such as the public credit registry. But he rubbed many the wrong way, even in Mumbai. For example, telling bankers they don't know how to manage treasury risk; they exacted revenge by not buying bonds. 

Acharya and Patel were criticised for keeping rates too tight for too long, and liquidity in acute deficit mode, which later needed record bond buying exercise by the central bank as a fix. Both refused to acknowledge that liquidity was in short supply, noting that the weighted average call rate (WACR), on an average, traded below the repo rate.

The RBI is now revising its liquidity framework as the old one was not in sync with reality. 

An outgoing Mumbai lad, who danced all his way to Ganpati immersions, Acharya later became extremely media shy and spoke only at the functions where the media wasn't allowed. That was a 180-degree turn of events. 

The C V Starr Professor of Economics at the Department of Finance in New York University's Stern School of Business will return to his academic career in just about time. The academic sessions start in August.

But who knows, India could have been lucky on the inflation front. Oil prices, after all, have remained extraordinarily benign for an extended period. And therefore, Acharya quoting Santiago should keep ringing in our ears: “It is better to be lucky. But I would rather be exact. Then when luck comes, you are ready.”