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Quest for Restoring Financial Stability in India

Quest for Restoring Financial Stability in India

  • Viral Acharya - C.V. Starr Professor of Economics in the Department of Finance at New York University Stern School of Business (NYU-Stern)
Critical Acclaim

July 2020 | 396 pages | SAGE Response
Beyond the headline-grabbing issues, the Indian economy is struggling to solve a critical problem: How to restore and maintain financial stability on a durable basis. In this book titled, Quest for Restoring Financial Stability in India, Former Deputy Governor of RBI, Dr. Viral V. Acharya, talks about his quest for restoring financial stability in India and offers a concrete plan for sustained improvement. Dr Acharya shares a feasible plan to address the recapitalization needs of public sector banks, offering solutions on how to improve credit allocation by credit intermediaries and establish viable and efficient capital markets. Elucidating the need-of-the-hour reforms, this book also raises several stark and unanswered questions related to the re-emergence of fiscal dominance in India, not just of monetary policy tools but also of banking regulations. It makes a persuasive case for striking the right balance between the government, centralbank, private sector and markets, in order to improve long-run growth prospects for the real economy. 

Foreword by Dr Y. V. Reddy, Former Governor, Reserve Bank of India
Preface: Fiscal Dominance—A Theory of Everything in India
PART I Resolving Non-Performing Assets (NPAs) and Recapitalizing Banks
Some Ways to Decisively Resolve Bank Stressed Assets
A Bank Should Be Something One Can ‘Bank’ Upon
The Unfinished Agenda: Restoring Public Sector Bank Health in India
Prompt Corrective Action: An Essential Element of Financial Stability Framework
PART II Creating a Public Credit Registry
A Case for Public Credit Registry in India
Public Credit Registry (PCR) and Goods and Services Tax Network (GSTN): Giant Strides to Democratize and Formalize Credit in India
Some Reflections on Microcredit and How a Public Credit Registry Can Strengthen It
What Can India’s Banking System Learn from Shampoo Sachet Revolution?
PART III Incorporating the Financial Cycle in the Monetary Policy Framework
Monetary Policy under Changing Financial and Macroeconomic Environment
Managing the Financial Cycles in EMEs: A Central Banker’s Perspective
PART IV Improving Monetary Policy Transmission
Monetary Transmission in India: Why Is It Important and Why Hasn’t It Worked Well?
Improving Monetary Transmission through the Banking Channel - The Case for External Benchmarks in Bank Loans
PART V Developing Viable Capital Markets and Ensuring External Sector Resilience
Understanding and Managing Interest Rate Risk at Banks
Global Spillovers: Managing Capital Flows and Forex Reserves
Development of Viable Capital Markets: The Indian Experience
PART VI Striking the Right Balance: Enhancing the Autonomy of the Central Bank, the Markets and the Real Economy
On the Importance of Independent Regulatory Institutions: The Case of the Central Bank
Why Less Can Be More: On the Crowding- Out Effects of Government Financing

"The solutions Acharya offers are many, and policy-makers would do well to have a closer look at the fairly long list provided in the various chapters of the book... a must for students of finance and banking, academics, market participants, policy-makers and the informed citizen." 

Dr. Usha Thorat, Former Deputy Governor, Reserve Bank of India
The Hindu Business Line, 3 August 2020

Professor Acharya argues pursuasively that India's original sin is fiscal dominance... (This) erudite work will be useful for any student of the Indian economy (as well as the mandarins in the Finance Ministry). It teaches, but in a very readable way.

Dr. Raghuram Rajan, Former Governor, Reserve Bank of India
The Economic Times, 30 July 2020

The conviction and concern with which Viral narrates the frontline battles of a policymaker to influence economic policy debates is the second reason I commend this book.  The earnestness with which he writes about them is both endearing and compelling.

Dr. Duvvuri Subbarao
Former Governor, Reserve Bank of India

Dr. Viral Acharya seamlessly combines theoretical first principles with market realities and policy prudence. He demonstrates how inextricably the financial, the fiscal, the regulatory and the external are connected and provides a unifying theme to understand their recent evolution. Fiscal policy and the financial sector will be at the fore during and after COVID-19, making this book particularly timely and relevant.

Dr. Sajjid Chinoy
Chief India Economist, J. P. Morgan

Viral Acharya is a straight talker. Even when he was in office, he was never diplomatic while delivering his speeches. They were not uniformly liked but he didn't change his style. While fiscal dominance is the central theme, the book is also replete with micro details of how the system is gamed by different stake holders.

Tamal Bandyopadhyay
Consulting Editor, Business Standard & Senior Adviser, Jana Small Finance Bank

Viral is perhaps very humble about the contribution of his book to the macro and finance literature. A huge contribution of Viral's book is to broaden the definition of fiscal dominance - beyond its effect on monetary policies, and to include the effect on financial regulations more broadly. This is especially important for a full service central bank of a large emerging market like India.

Dr. Prachi Mishra
MD/Chief India Economist Goldman Sachs India Securities

Dr Acharya’s passion for making a difference in the monetary and regulatory history of Reserve Bank of India comes across through the pages of the book. He has produced a unique book that is informative, analytical, contextual, and without doubt, a lasting contribution.

Dr Y. V. Reddy
Former Governor, Reserve Bank of India

Personal testimonies of central bankers written in real time are few and far between, especially for large emerging economies. Viral Acharya’s account of his efforts as Deputy Governor of the Reserve Bank of India to resist the ‘fiscal dominance’ undermining the pursuit of financial stability is both compelling and often moving. We can all learn from his experience, not least because fiscal dominance is growing around the world.

Mervyn King
British Economist and Former Governor of the Bank of England (2003—2013)

The art of central banking is essentially about balancing conflicting objectives, given the available degrees of freedom in the political-economy context. The author, bringing an insider’s perspective to some of the most hotly contested policy issues in the recent past, presents a comprehensive analysis of the various manifestations of this constant struggle and underscores the need for a wider public debate in the quest for financial stability. The speeches included in the collections are all works of considerable rigour and traverse a broad range of issues which are very useful for practitioners and academics alike and a must read for anyone interested in the culture and practice of policymaking in India.

Shyamala Gopinath
Chairperson of HDFC Bank and Former Deputy Governor, Reserve Bank of India (2004–2011)

Dr Viral Acharya, one of the foremost financial economists in the world, served as the Deputy Governor of the Reserve Bank of India during a tumultuous period. His insightful speeches on the challenges the Indian financial and monetary system faced always cut to the core of the issues, in simple, direct and extremely readable language. In this book, he brings together the edited speeches along with connecting commentary to explain what the Reserve Bank was trying to do. It is an important and timely contribution to our understanding of the Indian economy and deserves to be read carefully by anyone interested in understanding where India is going.

Dr. Raghuram Rajan
Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business and Former Governor, Reserve Bank of India (2013–2016)

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ISBN: 9789353884956

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