Date:10/09/2008 URL: http://www.thehindu.com/2008/09/10/stories/2008091056071700.htm

Business

Financial sector reforms high on Subbarao’s agenda

Special Correspondent

The reforms should promote inclusive growth through easily accessible financial services

To draw lessons from global experience
of the recent past
Supply-side pressures, demand-side
factors contribute to high inflation

. — PHOTO: VIVEK BENDRE

TASK CUT OUT: Reserve Bank of India Governor D. Subbarao (right) addressing his maiden press conference in Mumbai on Tuesday. Deputy Governor V. Leeladhar looks on

MUMBAI: The newly appointed Governor of the Reserve Bank of India, D. Subbarao, on Tuesday said that for sustained economic growth, it is essential that inflation and inflation expectations be contained.

“Our high growth over the past five years was accompanied by low and stable inflation, and financial stability. Our policy stance must ensure similar outcomes in the years ahead. Some have argued that the monetary measures initiated by the Reserve Bank will affect growth. The intent behind monetary tightening was, in fact, to moderate demand, and hence, some slowdown should not surprise us,” said Dr. Subbarao while addressing his first press conference after taking over as the RBI Governor on September 5.

The current high level of domestic inflation reflects a combination of supply-side pressures as well as demand-side factors.

The present inflation is largely a global phenomenon and is being driven by key international commodity prices, especially of crude oil, metals and food. These external pressures are being exacerbated by strong domestic demand pressures.

On further tightening the monetary policy, Dr. Subbarao said that “we will have to watch the impact of the measures already taken. Second, we will be watching the drivers of demand — in particular which sectors are triggering the growth in demand. Third, in a globalised world, we will also have to be watching developments around the world and make an assessment of their potential impact on our economic management.”

Financial sector reforms are top-most in his agenda. “While what the financial sector has achieved is impressive, the task ahead is formidable. The financial sector has to become more competitive, efficient and forward looking. This underscores the importance of financial sector reforms. The Reserve Bank is deeply conscious of this,” Dr. Subbarao said.

The Government and the RBI will be bringing out shortly a comprehensive report of the Committee on Financial Sector Assessment. “What we need to do is to use the available analyses and advice to draw a roadmap that responds to our immediate and medium term needs.”

In moving forward, “we will draw from the lessons of global experience of the recent period, and be cognizant of the evolving global situation. Second, financial sector reforms are not an end in themselves. They have meaning and relevance only if they are anchored in real sector objectives. Third, financial sector reforms should promote inclusive growth through efficient and easily accessible financial services.”