INSUBCONTINENT EXCLUSIVE:
Mr Acharya resigned last year after raising concerns about the central bank's independenceFormer central banker Viral Acharya warned against
the Reserve Bank of India monetizing the government's budget deficit, citing risks to inflation and external sector stability
"Adopting this approach is also deeply flawed," according to excerpts from Mr Acharya's soon-to-be-released book: 'Quest for Restoring
Financial Stability in India.' It "would mean regressing to errors of the 1970s and 1980s."Mr Acharya, who resigned last year after raising
concerns about the central bank's independence and the health of state-run lenders, was referring to experience of the past when the RBI's
monetization of government debt led to a spike in consumer prices and a balance of payments crisis
The RBI's mandate is to keep inflation within a band of 2 per cent-6 per cent.While Fiscal Responsibility and and Budget Management Act
prevents the central bank from buying bonds directly from the government in the primary market, calls have been growing to get the RBI to
directly buy the sovereign's debt using a provision in the law that allows such an action in the event of the country facing a national
calamity or a severe slowdown.With the coronavirus outbreak presenting that opportunity, Mr Acharya said this could lead to financial
repression in the economy
It could also fan India's twin deficits -- fiscal and current-account gaps -- leading to a loss in investor confidence."Such risk has
materialized unexpectedly at least once a decade over the past 30 years with several minor hiccups in between
History tells us that we ignore this risk at our own peril," he wrote.(Except for the headline, this story has not been edited by
TheIndianSubcontinent staff and is published from a syndicated feed.)
