Speeches & Media Interactions

I am delighted to participate in this symposium on Indian Economy organised by the Institute of Indian Economic Studies (IIES), Tokyo. I understand this event is being organised by the IIES after a gap of 3 years due to the intervening period of the COVID-19 pandemic. Earlier this year in March 2023, Prof. Sakakibara and Mr. Sugaya had visited the Reserve Bank of India in Mumbai when we discussed about my participation in this symposium.  I would like to convey my sincere thanks and gratitude to Prof. Sakakibara and the IIES for inviting me to participate in this event today.

Good Morning to you all! I am delighted to be here again at the prestigious Annual Central Banking Seminar, a flagship event of the Federal Reserve Bank of New York for which it has earned global renown. It is truly an honour to interact with central bankers from around the world, our community of tomorrow. You embody the theme of India’s G20 Presidency – Vasudhaivya Kutumbakam: the world is one family. 

The Climate is Striking Back

In my past interactions in this Seminar, I have dwelled on macroeconomic stability; price stability; exchange rate stability; financial stability – all essentially issues centered around the core competence of conservative central bankers from which we are reluctant to stray. After all, central banks stand for stability.

Ladies, gentlemen and distinguished guests, It is indeed a pleasure to be participating in this summit, a gathering that is engaged to distill the essence of responsible stewardship in the corporate world. Keeping up with the theme of this session, "The Challenge of Regulation", I will reflect a bit on the dynamic landscape of regulations and regulation making, its evolving nature and on the transformation underway in the financial sector. Later, I will also outline a few challenges and dilemmas encountered by the regulators in framing appropriate regulations to manage these transitions.

Do we need Regulations?

Many believe that minimal regulations, is the best way to foster growth of the enterprise. But history is replete with the examples of how minimal regulation coupled with lenient supervision and restrained enforcements have often led to financial crises. In fact, we would all agree that nothing could be more damaging to sustainable growth than a misfiring banking and financial sector. While in an ideal scenario, the ‘invisible hand’ would ensure that the system functions flawlessly for the greater good with minimal regulatory oversight, in reality it does not happen that way. As such, to control the irrational exuberance in the financial sector, there is need for a regulator who sets the boundaries and also enforces them for ensuring a sound and robust set of financial institutions and there by promotes financial stability.

Shri V G Sekar, Principal, College of Agricultural Banking, Heads of Priority Sector verticals of banks, Members of faculty from CAB, Ladies and Gentlemen. Good morning. 1. I thank CAB for inviting me today to discuss a critical topic that lies at the crossroads of financial institutions' responsibilities and our collective vision for a better, more sustainable world. I propose to briefly discuss the aspect of sustainable finance to begin with before coming to the theme of the conclave, that is Priority Sector Lending, as I believe that there is a strong interplay between these two.

I am delighted to be back at the Kautilya Economic Conclave, 2023. This event is emerging as a leading forum for well-rounded discourse on economic and other policy issues of contemporary relevance. I am sure the eminent gathering here will contribute richly to the discussions on issues and challenges that confront us today and tomorrow.

Prof. Errol D’Souza, Director, Indian Institute of Management, Ahmedabad or IIMA; Prof. Umakant Dash, Director, Institute of Rural Management, Anand or IRMA; Dr. Supriya Sharma, Partner-Insights, Centre for Innovation Incubation and Entrepreneurship or CIIE; representatives of the Bill & Melinda Gates Foundation (BMGF); faculty, students and staff of IIMA; and friends, I commend all of you on this laudable initiative of Financial Inclusion for Rural Transformation

Good afternoon and Namaskar. Thank you Alfred for those insightful opening remarks. I must mention that Alfred led the IMF’s Article IV India mission for the 2021 consultations. The sheer weight of that experience and deep understanding of Indian conditions is reflected in his views. I would also like to commend Alfred and his co-editors for a comprehensive evaluation of India’s financial system and very valuable recommendations on the way forward in a recent book evocatively titled “India’s Financial System: Building the Foundation for Strong and Sustainable Growth”.

I am glad to see Mr Thomas Helbling from the Asia and Pacific Department of the IMF in this session, and I look forward to hearing from him.

I thank our host and SEACEN EXCO Chair, the National Bank of Cambodia, the SEACEN Centre and Dr. Mangal Goswami, Executive Director, and the BIS for inviting me to speak in this distinguished forum. In particular, I am grateful to Deputy Governor Sum Sannisith for so graciously writing to me to participate in this 16th SEACEN-BIS High Level Seminar.

The Backdrop

It is widely believed that during the next two decades – if not for longer – the centre of gravity of the global economy will shift eastwards to Asia. The IMF’s Regional Economic Outlook for Asia and the Pacific indicates that this region will contribute about two-thirds of global growth in 2023 itself. India will account for a sixth of world output growth in 2023 and 2024. In terms of market exchange rates, India is the fifth largest economy of the world and the third largest economy on the basis of purchasing power parity. Our assessment is that by 2027, India will be a US$ 5 trillion economy and the third largest in the world even by market exchange rates. A key driver in this transformation is likely to be the window of a demographic dividend that opened up in 2018 and will probably last till the 2040s, going by fertility and mortality rates. Already, we are the most populous country in the world at 1.4 billion and the youngest at an average age of 28 years. The other major catalyst of India’s progress will be the pace and quality of financial sector development, which is the theme of my address today. It is anchored by a few slides.

I am delighted to be here with all of you to celebrate the Diamond Jubilee Year of the Delhi School of Economics (DSE). The Delhi School has made a distinct mark as an institution of excellence and very high reputation, both in India and abroad. The list of eminent economists and distinguished alumni associated with the DSE is long and impressive. The School has inspired generations of students to excel in diverse streams such as academia, research, government and corporate sectors. In the Reserve Bank of India, we have also benefitted immensely from the DSE, with a continuous stream of students joining the RBI. It is a matter of pride for me to be part of this momentous year in the history of the institute which has contributed immensely to the policy discourse in India.

2. Today, I have chosen to speak on “Art of Monetary Policy Making: The Indian Context”. As you would be aware, India formally adopted the flexible inflation targeting (FIT) framework in 2016, in broad alignment with global trends. The underlying principle of this framework is that a clearly articulated, legislatively mandated numerical inflation target is the best foundation for overall macroeconomic stability. Low and stable inflation helps households and businesses in planning for long-term savings and investments which ultimately drive innovation, productivity and sustainable growth. On the contrary, high and volatile inflation corrodes the economy by denting productivity and the long-term growth potential. Inflation also imposes disproportionate burden on the poor.

3. I have structured my talk in the following sequence: (i) evolution of monetary policy in India, culminating in the adoption of flexible inflation targeting (FIT) framework; (ii) key elements of this framework, including the forecasting process; (iii) conduct of monetary policy under the FIT regime; and (iv) monetary policy challenges at the current juncture.

Evolution of Monetary Policy Since Independence

4. During the 1950s and 1960s, as the country embarked upon planned economic development, monetary policy assumed a developmental role of meeting the credit needs of the economy as identified under the five-year plans. Bank nationalisation in 1969 ushered in the era of social banking and led to the credit planning phase (1969-85). This period witnessed widespread use of non-market instruments such as directed credit, administered interest rates and moral suasion.

5. Monetary policy during the 1970s and 1980s was constrained by fiscal dominance, automatic monetisation of budget deficits and excessive growth of monetary aggregates. The large scale deficit financing and the resultant high monetary and credit expansion led to inflationary pressures which were further exacerbated by a series of shocks, namely, the Indo-Pak war of 1971, the drought of 1973, the collapse of the Bretton Woods system in 1973, and global oil price shocks of 1973 and 1979. These events precipitated the adoption of “monetary targeting with feedback” as a formal monetary policy framework in 1985.

I am delighted to be here with all of you to celebrate the Diamond Jubilee Year of the Delhi School of Economics (DSE). The Delhi School has made a distinct mark as an institution of excellence and very high reputation, both in India and abroad. The list of eminent economists and distinguished alumni associated with the DSE is long and impressive. The School has inspired generations of students to excel in diverse streams such as academia, research, government and corporate sectors. In the Reserve Bank of India, we have also benefitted immensely from the DSE, with a continuous stream of students joining the RBI. It is a matter of pride for me to be part of this momentous year in the history of the institute which has contributed immensely to the policy discourse in India.

2. Today, I have chosen to speak on “Art of Monetary Policy Making: The Indian Context”. As you would be aware, India formally adopted the flexible inflation targeting (FIT) framework in 2016, in broad alignment with global trends. The underlying principle of this framework is that a clearly articulated, legislatively mandated numerical inflation target is the best foundation for overall macroeconomic stability. Low and stable inflation helps households and businesses in planning for long-term savings and investments which ultimately drive innovation, productivity and sustainable growth. On the contrary, high and volatile inflation corrodes the economy by denting productivity and the long-term growth potential. Inflation also imposes disproportionate burden on the poor.

3. I have structured my talk in the following sequence: (i) evolution of monetary policy in India, culminating in the adoption of flexible inflation targeting (FIT) framework; (ii) key elements of this framework, including the forecasting process; (iii) conduct of monetary policy under the FIT regime; and (iv) monetary policy challenges at the current juncture.

Evolution of Monetary Policy Since Independence

4. During the 1950s and 1960s, as the country embarked upon planned economic development, monetary policy assumed a developmental role of meeting the credit needs of the economy as identified under the five-year plans. Bank nationalisation in 1969 ushered in the era of social banking and led to the credit planning phase (1969-85). This period witnessed widespread use of non-market instruments such as directed credit, administered interest rates and moral suasion.

5. Monetary policy during the 1970s and 1980s was constrained by fiscal dominance, automatic monetisation of budget deficits and excessive growth of monetary aggregates. The large scale deficit financing and the resultant high monetary and credit expansion led to inflationary pressures which were further exacerbated by a series of shocks, namely, the Indo-Pak war of 1971, the drought of 1973, the collapse of the Bretton Woods system in 1973, and global oil price shocks of 1973 and 1979. These events precipitated the adoption of “monetary targeting with feedback” as a formal monetary policy framework in 1985.

I am delighted to be here with all of you to celebrate the Diamond Jubilee Year of the Delhi School of Economics (DSE). The Delhi School has made a distinct mark as an institution of excellence and very high reputation, both in India and abroad. The list of eminent economists and distinguished alumni associated with the DSE is long and impressive. The School has inspired generations of students to excel in diverse streams such as academia, research, government and corporate sectors. In the Reserve Bank of India, we have also benefitted immensely from the DSE, with a continuous stream of students joining the RBI. It is a matter of pride for me to be part of this momentous year in the history of the institute which has contributed immensely to the policy discourse in India.

2. Today, I have chosen to speak on “Art of Monetary Policy Making: The Indian Context”. As you would be aware, India formally adopted the flexible inflation targeting (FIT) framework in 2016, in broad alignment with global trends. The underlying principle of this framework is that a clearly articulated, legislatively mandated numerical inflation target is the best foundation for overall macroeconomic stability. Low and stable inflation helps households and businesses in planning for long-term savings and investments which ultimately drive innovation, productivity and sustainable growth. On the contrary, high and volatile inflation corrodes the economy by denting productivity and the long-term growth potential. Inflation also imposes disproportionate burden on the poor.

3. I have structured my talk in the following sequence: (i) evolution of monetary policy in India, culminating in the adoption of flexible inflation targeting (FIT) framework; (ii) key elements of this framework, including the forecasting process; (iii) conduct of monetary policy under the FIT regime; and (iv) monetary policy challenges at the current juncture.

Evolution of Monetary Policy Since Independence

4. During the 1950s and 1960s, as the country embarked upon planned economic development, monetary policy assumed a developmental role of meeting the credit needs of the economy as identified under the five-year plans. Bank nationalisation in 1969 ushered in the era of social banking and led to the credit planning phase (1969-85). This period witnessed widespread use of non-market instruments such as directed credit, administered interest rates and moral suasion.

5. Monetary policy during the 1970s and 1980s was constrained by fiscal dominance, automatic monetisation of budget deficits and excessive growth of monetary aggregates. The large scale deficit financing and the resultant high monetary and credit expansion led to inflationary pressures which were further exacerbated by a series of shocks, namely, the Indo-Pak war of 1971, the drought of 1973, the collapse of the Bretton Woods system in 1973, and global oil price shocks of 1973 and 1979. These events precipitated the adoption of “monetary targeting with feedback” as a formal monetary policy framework in 1985.