The Financial Research and Trading Lab (FRTL, Finance Lab) at IIM Calcutta successfully hosted renowned economist Dr. Viral V. Acharya’s virtual talk on ‘Fiscal Dominance: A theory of everything in India’. IIM Calcutta faculty members across disciplines and students across programs as well as alumni across programs, batches, academia, and industry attended the virtual talk and participated in the Q&A. The Director of IIM Calcutta, Prof. Anju Seth welcomed Dr. Viral V. Acharya, and Prof. Sourav Bhattacharya, Professor of Economics, introduced him to the audience.
Dr. Acharya is the C.V. Starr Professor of Economics in the Department of Finance at New York University Stern School of Business and an Academic Advisor to the Federal Reserve Banks of New York and Philadelphia. He served as a Deputy Governor at the Reserve Bank of India (RBI) from 23rd January 2017 to 23rd July 2019 in charge of Monetary Policy, Financial Markets, Financial Stability, and Research. His speeches while at the RBI was released in July 2020 in the form of a book titled “Quest for Restoring Financial Stability in India” (SAGE Publications India). The book has a new introductory chapter, “Fiscal Dominance: A Theory of Everything in India” on which this talk was based.
During his 45 minute talk, Dr. Acharya shared his experiences as a central banker and offered the perspectives he gathered on the causes, consequences, and remedies of the increasing dominance of the financial sector and central banking outcomes by India’s growing fiscal deficit. He began by putting out several hard questions on financial stability and government bond markets that would keep him awake at nights during his tenure at RBI. For example, “Why are the efforts for restoring financial stability seen as contradictory to pursuing growth, even though all evidence points to financial stability as a necessary condition for long-term growth?” On his quest for restoring financial stability in India, he proposed his thesis that the notion of fiscal dominance can be applied to potentially all financial sector policies and regulations. During the talk, he touched upon various issues: the resolution of non-performing assets and under-capitalized banks for restoring financial stability; the role of public credit registry for improving information infrastructure; the importance of a viable capital market to strengthen monetary policy transmission and external sector resilience; and finally, the need for aspiring the right balance between the government, the central bank, and the markets. The talk ended on a positive note with Dr. Acharya urging the audience to analyze his hypothesis critically and engage in public discourse for the strengthening of the Indian financial system.
It was followed by a Q&A session that lasted 50 minutes, Dr. Acharya responded to questions on a multitude of topics. These questions were received from the faculty, students, and alumni, and curated by Prof. Sourav Bhattacharya, Professor of Economics, IIM Calcutta. The event ended with a vote of thanks proposed by Prof. Sudhir S. Jaiswall, Coordinator, FRTL, IIM Calcutta.