Viral Acharya breaks silence after leaving RBI; gives economy advice

Former RBI Deputy Governor Viral Acharya on Monday said that the Indian government needs to reduce its reliance on bond markets and undertake a heavy disinvestment programme along with urgently implementing land, labour and agricultural reforms. Speaking at a panel discussion at Columbia University, New York on Friday on the 'Indian Economy: The Next Five Years', Acharya outlined a few "possible remedies" and recommendations for the Indian economy going forward. "I think my main recommendation for the years to follow is that maybe we need to carefully consider doing less. I think less may be more for the economy as far as government programmes are concerned at the present," Acharya said.

Former RBI Deputy Governor addresses panel discussion at Columbia University

"It may not be easy to pull back on certain announced programmes. But in that case, one has to rationalise heavy programmes that are not delivering the supposed objectives," he said, adding that those programmes which are maybe the least attractive politically can be wound down as soon as possible. "Some space needs to be freed up for others to borrow in the Indian economy," he said. Acharya, Professor of Economics at New York University Stern School of Business, was speaking at the Columbia Indian Economy Summit hosted by the Deepak and Neera Raj Center on Indian Economic Policies at Columbia University's School of International and Public Affairs in partnership with the Consulate General of India, New York. He was RBI's Deputy Governor from January 2017 to July 2019.

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He further said that the government needs to reduce its reliance on the bond markets. "I think it has to undertake a really heavy disinvestment programme ideally by selling of majority stakes so that there is some improvements in productivity being accumulated at the same time by raising government funds through equity markets rather than bond markets." He also stressed that he strongly supports the creation of an independent fiscal monitor, on the lines of a congregational budgeting office, where every time a programme is announced, there is an audit within two months that looks into what are the next five year implications of financing to be met for the particular programme. "I think this could also hold a mirror to the government funding as a whole if the targets are being just softened over year after year after year with some convenient excuse or the other. I think there should be a much greater discussion on this in the country."

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Acharya also emphasised that the time is "really ripe" for land, labour and agricultural reforms in India. "Without doing them (reforms), I find it very hard to see how we can bring the next rung of 200-300 million people into the middle class that can consume at 6-10 per cent year after year because the existing middle class cannot consume at 10 per cent forever. It's not possible," he said. The panel discussion was attended by Director at the Raj Center and former NITI Aayog Vice-Chairman Arvind Panagariya and professor and eminent economist Jagdish Bhagwati as well as other leading members of the academic and Indian-American community.

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The panel, which included former President of CII Naushad Forbes and former US Ambassador to India Frank Wisner, was moderated by former RBI Deputy Governor Rakesh Mohan. Acharya said the reforms will help bring a new set of people into the middle class who can then push up consumption. "Right now we are doing a lot for them through the government balance sheet but I think it would be better to give them livelihood, higher real wages, higher consuming power. "I think that will actually make the programs sustainable. Otherwise, we may get into a low-growth, low-productivity trap. That's the fear I have with India's present fiscal projections and the present fiscal dominance that's affecting almost every sector of the economy."

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