Ideas of India Viral Acharya on Restoring Financial Stability in India
9 snips
Oct 15, 2020 
Viral Acharya, C.V. Starr Professor of Economics and former RBI Deputy Governor, discusses fiscal dominance, banking reform, and restoring central bank independence. He covers risks from government borrowing, a blueprint for reprivatizing public banks, challenges from informal markets, and the role of technocrats and ideology in India’s policy shift.
AI Snips
Chapters
Books
Transcript
Episode notes
Fiscal Size Permeates Financial Policy
- Large government borrowing penetrates every financial policy area and distorts rules to favour the sovereign.
- This creates a sovereign–financial nexus that can trigger a doom loop harming growth and stability.
Prepare Banks For Reprivatization
- Reprivatize public sector banks after first improving governance and creating a professionally managed government investment arm.
- Empower boards and set clear arm's-length rules so private investors can value and buy troubled banks.
Game Of Chicken Between Fiscal And Monetary
- A central bank facing an unconstrained fiscal authority risks being forced into monetization via a game-of-chicken dynamic.
- Commitments like inflation targeting provide the central bank valuable leverage in that dynamic.
