Chairman Nout Wellink, Governor Noyer, distinguished academics and fellow central bankers, I am thankful to the Banque de France for giving me this opportunity to participate in the International Symposium on "Globalisation, Inflation and Monetary Policy". I will present some of the aspects of the Indian experience on the subject and conclude by briefly flagging select issues in the light of recent global developments.
Financial Sector Reforms
In India, reforms to improve efficiency and soundness of the financial sector started early in the reform cycle that commenced in 1991 - in some ways anticipating the gains that would accrue from the resultant flexibility in product and factor markets. However, the process of strengthening of the functioning of the financial institutions in terms of prudential framework, operational efficiency and regulatory / supervisory regimes has been gradual. It was also calibrated with the development of money, forex, government securities and equity markets. At the same time, the pace and content of reforms in banking, financial and external sectors are closely aligned with the progress in reforms in the real and fiscal sectors and in the public sector as a whole, considering in particular that the banking sector in India is dominated by the public sector. Our attempts to align the financial sector with the global best practices do take into account progress achieved in public policy in regard to similar alignments in related areas, especially the real sector flexibilities, fiscal health and overall governance standards.
In the Indian context, considerable weight is currently accorded by the Reserve Bank of India (RBI) to price and financial stability while recognising its twin objectives of growth and stability. The large segments of the poor tend to reap the benefits of high growth with a time lag while the rise in prices affects them instantly. Further, we recognise the limited capacity of the poor to bear risks that may occur in the real sector by virtue of developments in the financial sector, in the absence of social security mechanisms and public safety net.
Let me illustrate with two examples of emphasis on stability in relation to financial institutions and financial markets. First, the centrality of the banking sector, especially the retail deposit base and credit disbursement, is maintained while gradually expanding the practice of diversified universal banking. Second, in regard
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