I Do What I Do

by Raghuram G. Rajan

It is dangerous to have a de facto powerful position with low de jure status. Today, the RBI Governor has the salary of the Cabinet Secretary. He or she is appointed by the Prime Minister in consultation with the Finance Minister. The Governor’s rank in the government hierarchy is not defined but it is generally agreed that decisions will be explained only to the Prime Minister and the Finance Minister. There is an informal understanding in India that the Governor has the room to make needed decisions. In the interests of macroeconomic stability, none of this should be changed, though if these issues are ever revisited, there may be some virtue in explicitly setting the Governor’s rank commensurate with her position as the most important technocrat in charge of economic policy in the country.