Respected Prime Minister Sir, Shri
Vineet Jain, Honourable Shri Chidambaram, Dr. Rangarajan, Shri Ahluwalia, leaders
of industry and finance, and friends,
I am thankful to the organisers
for according me the privilege of participating in this panel discussion.
My comments are divided into three
parts - personal, present status, and prospects for Banking and Financial Sector
Reforms.
On the personal front, I have worked
closely with all the distinguished panelists here and hence, would like to publicly
acknowledge my deep debt of gratitude.
I have been working with Dr. Manmohan
Singh, our Prime Minister, in various capacities, starting in 1977 as his Deputy
Secretary in the finance ministry and more closely since the initiation of reforms.
Let me be very brief and say that I have always been inspired by his vision
and guidance. I am grateful to him for the continued trust in me.
I have known Montek for about twenty-five
years and had worked with him closely for sometime during the reform period.
One is inevitably impressed with his sharp intellect and admirable articulation.
We have been friends and have deep respect for each others’ professional abilities.
Dr. C. Rangararjan is my guru –
a guru in the true Indian tradition. He made me more of an economist than I
could ever dream of. The conceptual framework and intellectual as well institutional
foundations for the unique and impressive reforms in the monetary-fiscal, financial,
and external sectors were laid by him.
His successor Dr. Jalan refined
and nuanced the framework not only for taking these reforms forward but also
for managing threats to stability. Dr. Jalan’s contribution to exchange rate
management is admittedly legendary.
I worked with Shri Chidambaram,
initially, when he was the Commerce Minister and later when he was the Union
Finance Minister. We continue to work together closely and it is a delight to
have discussions with him knowing fully well that the outcome would be a better
policy.
Shri Chidambaram is bold, decisive,
and effective. Striking examples of these qualities are his decisions relating
to gold liberalisation and the introduction of the system of the ways and means
advance, which were the critical prerequisites for the evolution of money, government
securities and forex markets.
I recall that when I joined as
Governor three years ago, I emphasised the continuity and change aspects of
the policy. This is a defining characteristic of the Indian reforms, which have
been described as cautious. Shri Vajpayee, the then Prime Minister, and Shri
Jaswant Singh, who was then the Finance Minister, supported this approach. Shri
Singh provided strategic guidance and put full trust in my professional skills
and judgment.
In fact, I believe that, over the
fifteen years of reforms, all our leaders with their diverse backgrounds, and
their varied qualities, have contributed to an economic policy in India that
has given us some pride today and great hope for tomorrow.
On the present status of the banking
sector, admittedly, there is scope for considerable improvement. Yet, its strength
and resilience in ensuring growth and stability have been recognised universally.
In the major emerging economies, we compare favourably in the services sector
and are seeking to compete in the manufacturing sector while we try to catch
up on the fiscal and infrastructural fronts. However, it is in the financial
and banking sectors that we are unarguably ahead.
Our banking sector reform has been
unique in the world in that it combines a comprehensive reorientation of competition,
regulation and ownership in a non-disruptive and cost-effective manner. Indeed
our banking reform is a good illustration of the dynamism of the public sector
in managing the overhang problems and the pragmatism of public policy in enabling
the domestic and foreign private sectors to compete and expand.
Similarly, the financial sector
of India as a whole exhibits vibrancy and resilience. The government securities,
money and forex markets have significant public policy implications for a gradually-opening
emerging market economy. These have developed during the reform period, with
impressive diversification of participants and instruments.
The institutional, technical, and
micro-structural aspects of the Indian financial sector are in alignment with
the best global standards. Here, again progress achieved in financial sector
is a testimony to the healthy evolution through mutual cooperation amongst government,
monetary authority, regulators, and above all, diverse market participants –
domestic and foreign, in public as well as in private sector.
Reflecting on future prospects
in banking, immediate focus has to be on the cleaning up of the remnants of
undercapitalised banks, while concentrating on improvements in the rural co-operative
credit system. It is also necessary to ensure improvements in their governance
and financial management. In the banking system as a whole, a healthy credit
culture encompassing appropriate pricing, quality of service, financial inclusion
and contract-enforcement would be vital.
While the larger corporates have
already acquired considerable freedom in accessing funds from a variety of sources
such as banks, non-banks, capital markets, and external resources, the small
and medium enterprises, agriculture sector, artisans and the informal sector
as a whole, remain to be demonstrably benefited.
For the way ahead, for the financial
sector as whole, given the strong foundations and basic institutional framework,
the issues relate to the pace of further deregulation and liberalisation, consistent
with the progress of reform in the real and fiscal sectors. In practice, within
the given legal framework, priorities have to be formulated to ensure implementation
in tune with the evolving domestic and external developments.
The Reserve Bank of India has,
in the service of our country, a proven track record and professionalism, which
have lent it considerable credibility - both domestically and globally. This
credibility enables the RBI to confidently carry the reforms forward to credibly
maintain price and financial stability, while enabling self-accelerating equitable
growth at elevated levels.
Thank you.
* Comments by Dr. Y.V. Reddy, Governor, Reserve
Bank of India at the Panel Discussion on '15 Years of Reforms and the Road Ahead'
convened on the occasion of 'The Economic Times Awards for Corporate Excellence
2006-07' on October 6, 2006 at National Centre for Performing Arts, Mumbai.