In a lecture by him, which was shared by the RBI late on Monday, Acharya said India's borrowing relative to its output has ranged from 67 per cent to 85 per cent since 2000 and has outpaced many emerging markets including China.
"As more government debt floods markets, the relative safety and liquidity premium attached by investors to high-rated corporate bonds diminishes, raising the cost of borrowing especially for AAA-rated borrowers and making it relatively less sensitive to policy rate cuts," Acharya said.
Acharya is leaving RBI on Tuesday, six months before the scheduled end of his term in office, citing personal reasons.
The RBI cut the repo rate to 5.75 per cent on June 6, its third cut in 2019, while also changing its policy stance to "accommodative", after data showed the economy growing at its slowest in over four years.
India should cut back on subsidies and programmes that are not delivering long-term growth and divest more of its public sector holdings. The much-needed land, labour and agricultural reforms could be undertaken, all of which can help in crowd-in private sector growth. There could be efficiency gains if there are more private investors playing an effective role in the governance of public sector enterprises," Acharya said.
Toward the end of his tenure, Acharya was at the receiving end of the government's ire. That came after he delivered a hard-hitting speech on October 26, wherein he directly criticised the Government for seeking surplus of the RBI. Urjit Patel, the then Governor, who was seen as encouraging Acharya to speak on central bank autonomy, subsequently resigned and was replaced by Shaktikanta Das, an ex-bureaucrat.
The government is preparing its first-ever overseas sovereign bond issue later this fiscal where officials said the main aim is to leave domestic funds for the private sector borrowings and to tap low cost overseas funds.
"Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution," Acharya said in the now famous October speech.
"Their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans."
Acharya, who had requested to leave the central bank by July 23, will return to the New York University Stern School of Business, where his main research interest is financial risk and its genesis in government-induced distortions ironically.
( With inputs from IANS )