'Foreign hand' at RBI

The appointment of Viral Acharya, 42, as one of the youngest deputy governors of the Reserve Bank of India, can be considered a big step forward in terms of healthy precedents for the central bank. In casting the net wide to include outsiders with international exposure to fill a critical post in the central bank, the government has taken a professional approach that, importantly, signals an openness to fresh ideas. Mr Acharya, a professor at New York University, will be in charge of the monetary policy department, which fell vacant after incumbent Urjit Patel was appointed governor and which will have a major role to play in the days ahead as the biggest demonetisation exercise in history winds down. 

On a broader scale, the importance of inducting people with meaningful global exposure can scarcely be over-emphasised at a time when governments and central banks urgently need to integrate to track terror finance and black money. But beyond these transactional requirements, there are also the intellectual influences that people with international exposure bring to bear on the institutions they join. Equally, not being invested in the system, so to speak, provides them the freedom to highlight inconvenient truths that demand urgent attention. Mr Patel’s predecessor Raghuram Rajan’s three-year stint, for instance, brought relentless focus to bear on the chronic problem of non-performing assets, especially in public sector banks. Under Mr Rajan, stricter recognition norms were introduced to ensure a more accurate picture of bad loans. In June, the RBI’s financial stability report was unsparingly critical of the health of public sector banks in an oblique comment on government-directed lending. 

Mr Acharya, who deprecatingly describes himself as a “poor man’s Rajan”, has been a staunch votary of central bank independence. He has, however, also been a forthright critic of public sector banks, co-authoring a paper published in 2015 that recommended reversing bank nationalisation. How far will the government be receptive to such relative iconoclasm is an open question. But in a country where ideas take their own time to develop traction, there is no gainsaying the importance of external intellectual voices in influencing the momentum of reform. 

A case in point is when the previous regime appointed, for the first time, Kaushik Basu, a Cornell University professor, as chief economic adviser, marking the start of a tradition with Raghuram Rajan (Chicago University) and Arvind Subramanian (Peterson Institute) succeeding him. Mr Basu did much to raise the standard of the annual Economic Survey, a trend that endured under his successors. His thought-provoking intervention on corruption – offering immunity to bribe-givers but not to bribe-takers – added a new dynamic to that discourse. Mr Subramanian’s prescriptions on subsidies driven by Jan Dhan-Aadhaar-mobile have been taken up in a major way by this regime, as has been his call for phasing out undeserved subsidies. 

Perhaps the only reservation about Mr Acharya’s appointment is his lack of administrative experience and limited hands-on “India” experience; his post-IIT education has mostly been overseas and his exposure to the country’s institutions is restricted to serving on Sebi’s international advisory board. It is quite possible that his choice from a competitive field of 100 contenders will make him a quick learner.

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