Former Reserve Bank of India (RBI) Deputy Governor Viral Acharya has alleged in his new book that former Governor Urjit Patel quit prematurely because of attempts to weaken the central bank's autonomy.
Acharya, in his book, "Quest for Restoring Financial Stability in India', also gives out new details on why he quit his job abruptly when six months were still left in his tenure. The book is a collection of his comments, speeches, and research as a member of the RBI's Monetary Policy Committee (MPC).
He argues that numerous policies "regressed" the economic climate in the country while he was deputy governor between early January 2017 and mid-July 2019.
"A complete degeneration into excessive monetary and credit stimulus that had caused the Indian financial sector to lose its stability in just the previous decade had been rendered difficult," Acharya writes in the preface of his book that was released on July 24.
He also points out that excessive credit and monetary stimulus led to the Indian financial sector losing its stability.
Mentioning Patel, he underlines that attempts to "alter the governance structure of the RBI to institutionalise such outcomes in future would have meant crossing the Rubicon and had to be foiled" as a result of which the RBI "lost its governor on the altar of financial stability".
Acharya mentions how the apex bank was under "intense pressure" to open up "liquidity and credit taps" to shore up the economy, and its clampdown on non-performing borrowers was being "stayed".
In the book, he alludes that the Centre wanted the RBI to dilute Prompt Corrective Action (PCA) norms, ease up on defaulters, transfer excess capital as dividend to the treasury, and devise an easy policy to help it borrow more. Thus, it surprisingly invoked the never used Section 7 of the RBI Act to command the regulator on policy matters.
Acharya, in his book, highlights that the clash was between "a regulator fighting for a sound and prudent banking system and a government that began on the right path but retreated due to fiscal profligacy and lobbying pressure."
He further adds that the "tide turned in the space of 10 months" and the Centre was "trespassing on the autonomy of the regulator, rowing back on prudent measures and making unreasonable demands" that drove Patel to resign in 2018.
Acharya writes, "as financial stability often requires enduring short-term pain for long-run growth, it is not easy to be its gatekeeper anywhere in the world, and certainly not so in India".
He expresses that as RBI's deputy governor he did not "strike compromises on what really mattered for restoring financial stability" neither with the governors nor with the government.
Articulating his decision to quit as the apex bank's deputy governor, Acharya enunciates, "at times it wasn't easy, but I continue to believe that it was worth fighting for. It was the right stance".
His book comes close on the heels of Patel's own book (that was also released on July 24), which provides a glance into how India's bankruptcy code was weakened by several stakeholders within the broader banking system.
Acharya joined RBI in early 2017 and quit his job within two years, before his term ended in 2019. He is currently a professor at NYU's Stern School of Business.
Also Read: Urjit Patel appointed new NIPFP Chairman