The expectations from Raghuram Rajan as India’s next chief money man are far too many. He is known for his approach toward managing inflation expectations and stance against coporate entry into banking. It is fairly certain that he will bring fresh thinking to the working of the Reserve Bank of India (RBI). Here are five things which he should stay away from:
1. He should not say whether he is happy or unhappy with any level of the rupee. Ditto about defending any particular level.
2. He should not speak at too many public forums. Increasingly, both the RBI governor and his deputies have been doing this at various functions, including investor conferences. Two deputies often speak on the same subject. If such participation is aimed at finding out what’s happening in the markets, the central bank should develop its own market intelligence. In central banking, it is always better to be little seen or heard.
3. He should either dismantle the technical advisory committee on monetary policy or give it a statutory status. Right now, the RBI mostly doesn’t listen to the committee’s recommendations and does exactly the opposite. What’s the point in having a committee whose recommendations are continuously rejected? If it’s made a statutory committee, than it will be binding on RBI to listen to what the panel says.
4. The semi-quarterly review of monetary policy builds market expectations and the RBI seems to be always under pressure to do something or the other to meet these. He can do away with this, or structure it in a different way. Also, telling the world how RBI arrives at certain decisions when it formulates its monetary policies—in the manner of the Federal Open Market Committee minutes—may not be a bad idea.
5. Finally, Rajan should stop meeting the finance minister in North Block on the eve of every monetary policy, carrying a briefcase. For RBI, more than independence, it is important to be seen as independent. The governor’s meeting with the finance minister just before every policy destroys that perception.
PS: I am tempted to reproduce a text message that has been doing rounds this morning: “Raghuram Rajan’s appointment will usher in Ram Rajya at RBI.”