New Governor won’t Get to be His Own Man

In 2008, the new RBI Governor, Raghuram Rajan, detailed his idea of the right agenda for India as head of the Committee on Financial Sector Reforms. Of its many recommendations, the key one was that RBI should have a single policy focus — low, stable inflation. Corollary: it should not focus on targeting the exchange rate or stimulating GDP. Noting that historically RBI sometimes targeted inflation, sometimes the exchange rate, and sometimes economic growth, the report said “by trying to do too many things at once, RBI risks doing none of them well”. Will Rajan put this vision into practice as RBI Governor? Not a chance. Indian politics will not permit an inflation only focus for RBI. After his spell in the finance ministry, Rajan must be well aware of the limits to the independence of any RBI Governor............

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