Urjit Patel Current Affairs - 2019

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RBI Deputy Governor Viral Acharya quits before his term ends

Viral Acharya Deputy Governor of Reserve Bank of India (RBI) has resigned from his position 6 months before the end of his term citing reason as unavoidable personal circumstances.

Acharya, who joined RBI on 23 January 2017 for a three-year term, was youngest deputy governor of RBI post economic liberalisation. He may now return to New York University Stern School of Business (NYU Stern) in August 2020 instead of February 2020.

Key Highlights

RBI Deputy Governor Viral Acharya resignation is second high profile resignation at Reserve Bank of India (RBI). In December 2018 Urjit Patel former RBI governor, also resigned about nine months before end of his schedule term citing personal reasons.

Acharya’s resignation is also significant as he resigned shortly before Bimal Jalan committee is to submit its report on whether RBI reserves could be transferred to Centre government or not.

Mr. Acharya who was in charge of the monetary policy department, created a controversy in October 2018 by strongly alluding to encroachment on autonomy of apex bank of country by government. One of the main tension points he highlighted was treatment of RBI reserves.

RBI is left with only 3 Deputy Governors- N.S. Vishwanathan, B.P. Kanungo and M.K. Jain.

Conflict: Dr. Acharya has been differing with RBI Governor Shaktikanta Das in last two Monetary Policy Committee (MPC) meetings on both growth and inflation. In latest monetary policy meeting also, RBI Governor Das and Deputy Governor Acharya differed strongly on state of fiscal deficit and how to account for that. Acharya, who was in charge of monetary policy department while ending his term warned of wrath of markets if autonomy of a central bank was compromised.

About Reserve Bank of India

RBI is India’s central banking institution, which controls issuance and supply of Indian rupee.

The RBI began its operations on 1 April 1935 in accordance with Reserve Bank of India Act, 1934. RBI was nationalised on 1 January 1949, after India gained independence on 15 August 1947.

Until Monetary Policy Committee was established in 2016, it also controlled monetary policy in India.

Bimal Jalan led panel defers report on RBI surplus funds

The Reserve Bank of India (RBI) committee led by Bimal Jalan (former RBI governor) constituted for considering guidelines for transfer of central bank’s surplus funds to government delayed submitting its report after lack of consensus among its members. The panel was originally supposed to submit its report in April 2019.

Background

The RBI committee was appointed in December 2018 to review Economic Capital Framework (ECF) for central bank after then Union Ministry of Finance under Arun Jaitely advised RBI to transfer surplus funds to central government.

Arguments by Finance Ministry:  The finance ministry was of view that the buffer of 28% of gross assets maintained by RBI bank is well above global norm of about 14%. Thus, RBI board in its meeting held on 19 November 2018, decided to constitute a panel to examine Economic Capital Framework (ECF).

This led to loggerheads between government and RBI under its previous governor Urjit Patel (who later resigned) over Rs.9.6 lakh crore surplus capital that central bank keeps with itself.

About ECF Panel

Members: The six member committee headed by Bimal Jalan includes- Rakesh Mohan (former deputy governor of RBI) as vice-chairman, Subhash Chandra Garg (finance secretary), N S Vishwanathan (RBI deputy governor), and lastly RBI central board members Sudhir Mankad and Bharat Doshi.

Objective: The panel was entrusted to review best practices followed by central banks throughout the world in making assessment and provisions for risks.

Timeline: The ECF panel was required to submit its report to RBI within 90 days of its first meeting. The 1st meeting of ECF took place on 8 January 2019 following which the panel was given a 3 month extension.

Way Forward

The Bimal Jalan led panel will now meet one more time before submitting its report by end of June 2019 and the delay in finalising report which may be over difference of opinion will also be discussed.