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RBI Governor speaks on India and the Global Financial Crisis |
November 30, 2009: On a recent visit to the Indian School of Business (ISB), Dr D Subbarao, Governor, Reserve Bank of India (RBI) delivered a talk on ‘India and the Global Financial Crisis: Collateral Damage and Response’, to an enthusiastic audience of students and faculty.
Starting off his talk, Subbarao recalled his role in attracting the ISB to Hyderabad during his days as the Finance Secretary to the Government of Andhra Pradesh. He then went on to address four issues in his presentation: Why India was hit by the crisis, how it was hit by the crisis, how it has responded to the challenge, and the outlook for India.
According to Subbarao, India was worse hit by the crisis than expected because of two reasons. “Firstly, India is far more integrated into the world than we recognised,” he said. Secondly, financial integration is deeper than trade integration. He further said that India was hit by the crisis through three channels – financial, real, and confidence.
Subbarao said that the government sought to manage the crisis by providing fiscal stimulus. The RBI responded with monetary accommodation and counter-cyclical regulatory measures. The central bank’s monetary policy response was guided by three objectives - ample rupee liquidity, comfortable foreign exchange liquidity, and credit flow to productive sectors.
“One of the things that stood us in good stead during the crisis was that the rural consumption held up,” Subbarao added. He said that the challenges going forward were ensuring that monetary and fiscal stimuli work through the system, deciding on an exit strategy – timing and sequencing, returning to fiscal consolidation, supporting drivers of growth, and managing policy in a globalising world. Saying that India’s recovery will be swift and sharp, he concluded that “The India growth story is intact.” |
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