- Thursday, February 27, 2025
Former deputy governor of India’s Reserve Bank of India Viral Acharya has said in a prelude to his new book.
By: Shubham Ghosh
IN a sensational claim, former deputy governor of India’s central bank Viral Acharya has said in a prelude to his new book that the Reserve Bank of India (RBI) had turned down the Narendra Modi government’s proposal to extract Rs 2-3 lakh crore (£19.1 million-£28.7 million) from its balance sheet in 2018 for pre-election expenses ahead of the general elections of 2019.
According to India’s Mint, the new prelude is in the updated edition of Acharya’s publication Quest for Restoring Financial Stability in India, which was first published in 2020.
The incident apparently caused differences between the government and the central bank and the economist had first flagged the issue while speaking at the AD Shroff Memorial Lecture in Mumbai in October 2018.
“Creative minds in the bureaucracy and the government” devised a plan to transfer substantial sums accumulated by RBI during tenure of previous governments to the current government’s account, Acharya said in the prelude.
He also said that the RBI sets aside a part of its profit every year and does not distribute it all to the government. He added that in three years leading up to demonetisation, the central bank made record profit transfers to the government.
During the demonetisation year (November 8, 2016), the expense for printing currency reduced the transfers made to the government and it resulted in “intensifying” the government’s demand ahead of the 2019 polls, Acharya said, according to the newspaper.
Acharya said it was effectively an effort to ensure back-door monetisation of fiscal deficit by the central bank.
“Why cut populist expenditures in an election year …. when the central bank balance sheet can be raided and surging fiscal deficits essentially monetised?”
The RBI was also allegedly pressured because of the government’s failure to raise divestment revenues. Acharya said divestment shortfall ought to be met via transfers from the central bank is an annual exercise now.
When the central bank did not comply with the requests for the transfers sought, a proposal within the government suggested invoking Section 7 of the Reserve Bank of India Act allowing the government to issue ‘directions to the bank as it may, after consultation with RBI governor, (to consider it) necessary in the public interest’, Acharya added.
Invoking of the section was an unprecedented move in the bank’s eight decade-old history. While the then governor of the bank, Urjit Patel, cited personal reasons for stepping down nine months before the completion of his term, reports claimed that the move came at a time when the RBI’s autonomy was facing pressure from the government.
As per Mint, Acharya, who served as the deputy governor of RBI between 2017 and 2019, said in his book’s updated edition that matters of “public interest” like this should be openly debated and not behind closed doors.
Acharya, who quit in June 2019, six months before his three-year term as the deputy governor in charge of the monetary policy department ended, had cautioned that any government undermining the bank’s authority would face an economic backlash.
