With a fiercely independent mind, did Acharya find it uncomfortable to work against his own conviction and hence opted to return to academia? These questions will linger. Some would argue that no one is indispensable and the exit of one professional will not bring down the institution or the economy. But the point is functions such as regulation of the banking sector and monetary management need core competence.
As a member of the Central Board of Directors of RBI and the Monetary Policy Committee, Acharya brought credibility to his job that entails a command over finance. The need is to find a suitable successor, and provide room for dialogue (even dissent) that should the guide relations within the RBI as well.
Reportedly, Governor Shaktikanta Das and Acharya had different views on emerging issues driving monetary policy decisions, with their contrasting assessments of fiscal deficit that sets the course for interest rates.
At the last MPC meeting, Acharya had underscored the need to correct the economic measurement of fiscal slippage taking into account the impact of a rising public sector borrowing requirement. The Centre has not taken into account the debt of state undertakings serviced entirely from the Budget, and this may have understated the fiscal deficit.
However, holding that the government had maintained its fiscal promise, RBI Governor had 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.
Last year, Acharya had also made a spirited defence of the RBI’s scheme of placing troubled banks under Prompt and Corrective Action, saying that without PCA, some banks would have been worse off than they are now, needing more taxpayer money for recapitalisation. “Like Odysseus, bank regulators tie themselves to the mast to evade the voices of the forbearance sirens,” he was quoted as saying at a lecture in IIT Mumbai.
He had also suggested that the government re-privatise some of the nationalised banks as it would reduce the overall amount that it needs to infuse as bank capital. Of course, the counter argument would be that privatisation alone cannot fix the governance ills in the banking.
Debate and argument are crucial to making institutions stronger and vibrant. That’s what the RBI needs now, especially in the current global economic environment where financial stability poses a huge challenge.