Former deputy governor of Reserve Bank of India (RBI), Viral Acharya has suggested that India must study the global best practices on appointments of central bank governors and learn from it. Even appointment of Board members to RBI should not happen overnight, but after a thorough scrutiny by the Parliament like in the US, he says.
Speaking to BusinessToday.In, Acharya said that today's Central banker needs a fair deal of understanding of economics, markets, and macroeconomics. Unlike in the nationalised era, he added, government, RBI and public sector banks (PSBs) can no longer function like a 'Hindu Undivided Family' -- the analogy referring to RBI's often-criticised attempts of the past of the government (finances) running even at the cost of a suppressed financial sector. "You don't need a technocratic central bank governor to do that. But we have moved on. We are a market based economy, we are not saying that we will only deliver growth through government investments, we want the private sector to thrive, so I think there is a role for technocratic expertise (in the post of central bank governor)."
Acharya acknowledged that at least in the case of governor's appointment, India has a financial sector appointments committee as the global best practice is to carry out the appointment after adequate scrutiny. "Appointment of (RBI) Board members is also a problem. We can't just wake up one day and appoint a person on the Board of Federal Reserve (in the US) without going through Parliamentary scrutiny. There is a testimony that has to be provided and the person is grilled by the Parliament before appointment is made. Unlike that there were times during my term when you wake up in the morning and someone has been let go, wake up the next morning to find someone else appointed, and I have no idea what the process is," Acharya points out. "I am sure many other people in the country are wondering what the process is. I don't want to question any specific appointments, I am always for institutional processes. System needs checks and balances," he adds.
Acharya clarifies that he is for the operational autonomy of the central bank not because central bankers should be free to do whatever they want. "In a healthy democracy, you need checks and balances on the decisions that are being taken and the operational autonomy of the central bank is as important as checks and balances on financial and macroeconomic decisions that are taken in the economy. Maybe we should document what the best practices are on the appointments of central bankers and try to learn from it," he opines.