Demand for ₹2-3 tn sparked RBI-govt clash, says Acharya

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₹2-3 trillion from its balance sheet in 2018 for pre-election expenditure ahead of Lok Sabha polls in the following year, former RBI deputy governor Viral Acharya said in a new prelude to his book, Quest for Restoring Financial Stability in India published by Penguin Random House India. This revelation comes amid calls for increased government spending before the general and assembly elections due in 2024, despite marginal growth in the Centre’s tax collections in the first five months of FY24. Acharya has for the first time publicly disclosed in his prelude the series of events that led to the differences between RBI and the government that he had first hinted while delivering his speech at the A.D.

Shroff Memorial Lecture in late 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, he said in the prelude. This new prelude is in the updated edition of his book, first published in 2020.

It has been exclusively shared with Mint. Every year, the central bank sets aside a part of its profit, instead of distributing it all to the government, and in three years leading up to demonetization, the central bank made record profit transfers to the government, Acharya said. During the demonetization year, the expense for currency printing reduced the transfers made to the Centre, resulting in “intensifying " the government’s demand ahead of the 2019 elections, said the former deputy governor.

It was effectively an attempt to ensure back-door monetization of fiscal deficit by the central bank, he said. “Why cut populist expenditures in an election year .... when the central bank balance