Y V Reddy: India - development and reform experience; and prospects
Address by Dr Y V Reddy, Governor of the Reserve Bank of India, at the Bank of Mexico,
Mexico City, 13 September 2007.
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Governor Ortiz and Friends,
I am delighted to be here in Mexico to address this august gathering at the Bank of Mexico. I
am honoured by the invitation extended to me. Governor Ortiz is among the most respected
Central Bank Governors. His perceptions and words of wisdom, based on sound
understanding of theory as well as compulsions of public policy making, are eagerly sought.
In fact, Governor Ortiz heads the Central Bank Governance Group in the Bank for
International Settlements of which I am a Member. The talk that he delivered in the Reserve
Bank of India in November 2006 on Mexico's experience with Financial Stability is vividly
remembered by all of us. Again, his elucidation of "Growth and Stability in Latin America and
Asia" in the prestigious Sir Purushothamdas Thakurdas Memorial Lecture in India during the
same visit is, in my view, a pioneering piece on the subject.
Mexico has successfully achieved the macroeconomic and financial stability that fosters
rapid economic growth. A range of specific reforms implemented in Mexico, which include to
improvement in business environment and corporate governance; development of human
capital; incentive-based social assistance programs; and broader access for health
insurance; have attracted international interest in the Mexican economy. Monetary policy has
also been able to achieve and maintain a low inflation regime, which is vital for the social
well-being in emerging economies. Mexico provides an appealing development model for
many developing countries. I must compliment the leading lights of public policy in Mexico for
these impressive outcomes.
I. India's development experience: pre-reform period
Some hold the view that India was a poor country for most part of the human history though
there were pockets of prosperity and islands of riches. However, accounts of others,
especially global travellers and those who invaded India indicate that India was a prosperous
country at least till the 17th century. According to an OECD publication, in 1700 AD, broadly
defined, India's gross domestic product (GDP) at US $ 90.8 billion was 24.4 per cent of world
GDP (Maddison Angus, "The World Economy: A Millennium Perspective", OECD, 2001).
Lord Meghnad Desai, while delivering the first P.R. Brahmananda Memorial Lecture in
Mumbai in September 2004, noted that the story of the 19th century for India is not one of
gloom and doom. He added that during the second half of the 19th century, where the data
are best available, India was an open economy enjoying an export led growth but there was
a drain of the export surplus to pay Home Charges. During the forty year period from 1860 to
1900, the per capita income growth was 0.5 to 1 per cent. According to Lord Desai, the first
fifty years of the 20th century were much less favourable for the Indian economy than the last
forty years of the 19th century. Further, in a book titled "The National Income of India in the
Twentieth Century", Professor Sivasubramonian observed that in the first five decades of the
20th century (1900-01 to 1946-47), before we got our independence in 1947, the per capita
GDP in India was stagnant, as the trend growth in GDP during this period was 0.9 per cent
with population growing by 0.8 per cent (Sivasubramonian, S., Oxford University Press,
2000).
As compared with near stagnant growth in the first 50 years of the 20th century, it could be
seen from Table 1 (Attached), the annual growth averaging around 3.5 per cent during the
period 1950 to 1980 was comparatively better, while per capita growth broke out of the long
period of inertia and averaged 1.1 per cent until around 1980. The average growth rate of
around 6 per cent since the 1980s, while embarking on a higher average growth path of 8.6
per cent in the last four years could be a paradigm shift.
The Indian experience clearly suggests that the mixed-economy model and planned
development strategy in the first phase during the 1950s and 1960s, improved growth rate
dramatically relative to previous decades, and also provided the essential building blocks and
laid the strong foundations of an indigenous industrial base, vibrant entrepreneurial class,
knowledge economy, with considerable improvement in vertical, social and economic
mobility. However, the inward looking import substitution strategy pursued during the initial
decades of the planning period resulted in declining productivity and high cost economy.
Realizing this, significant changes in policy were initiated in the early 1980s, taking account
of oil shocks in the 1970s and early 1980s. These policy measures took India into a higher
growth trajectory in the 1980s but in its wake created some macroeconomic imbalances
leading to a crisis in 1991 that triggered more comprehensive and sustainable reforms. The
policies since 1991 provided ample opportunities to build on the strong foundations in
economic, political and social sphere, laid during the pre-reform period of planned
development.
II. Development experience: post-reform period
Triggers of reforms
The policy reforms in the 1980s provided impetus for high growth and enhanced
competitiveness but the growth process turned unsustainable. It manifested in the growing
macroeconomic imbalances over the decade in the form of high fiscal deficit, high levels of
current account deficit, and increasing levels of short term external debt, besides a
repressive and weakened financial system. The immediate provocation for the crisis in 1991
was also a combination of external events that generated liquidity problems on the external
front.
The gulf crisis of 1991 not only affected India's oil imports due to soaring oil prices but also
eroded export markets in West Asia, and caused a setback to inward remittances and tourist
earnings. The deterioration in exports to Eastern Europe, with the break-up of erstwhile
USSR, accentuated the crisis. Around the same time, India's credit rating was lowered,
which restricted its access to commercial borrowings and there was unwillingness on the part
of normal banking channels to renew short-term credit to Indian banks abroad. Exceptional
financing measures became inevitable, and the overall deficit in 1990-91 was financed
almost equally by recourse to IMF and drawdown of reserves. The severity of the balance of
payments crisis in the early 1990s could be gauged from the fact that India's foreign currency
assets depleted rapidly from US $ 3.1 billion in August 1990 to US $ 975 million on July 12,
1991.
I would now narrate the story of our exciting journey from the agony of 1991 to relative
comfort in 2007, and conclude by mentioning prospects and challenges ahead of us.
Reform measures
During the crisis period, a conscious decision was taken to honor all debt obligations without
seeking rescheduling and several steps, including some unconventional ones, like pledging
gold with international institutions, were resorted to tide over the crisis. The immediate steps
undertaken included, among others, tightening of non-essential imports and availing credit
from the IMF and other multilateral and bilateral donors. A macroeconomic structural and
stabilization programme encompassing trade, industry, foreign investment, exchange rate,
public finance and the financial sector was put in place creating an environment conducive
for the expansion of trade and investment. It was recognized that trade policies, exchange
rate policies and industrial policies should form part of an integrated policy framework if the
aim was to improve the overall productivity, competitiveness and efficiency of the economic
system, in general, and the external sector, in particular.
Features of economic reforms
It may be interesting to enumerate here some of the important features of the economic
reform process undertaken by India since 1991.
First, the approach towards reforms in India has been cautious with appropriate sequencing
of measures, complementary reforms across sectors (e.g., monetary, fiscal and external
sector), and development of financial institutions and markets. The objective has been to
progress with some harmony across sectors.
Second, the pace and sequencing of liberalization has been responsive to domestic
developments, especially in the monetary and financial sectors, and the evolving
international financial architecture. The reforms were debated intensely and designed
essentially indigenously.
Third, the approach to reform was "gradual but steady" rather than a "big bang" approach.
The reforms have generally been viewed as a process and not as an event. In this approach,
the pace and sequencing of liberalization could be tempered keeping in view the degree of
comfort in moving forward in a credible way.
Fourth, the major thrust driving the reform process was the quest for higher growth and
efficiency along with macroeconomic stability. At the same time, the reforms had to be
"inclusive" in the sense that the benefits of reforms are to be demonstrably shared by all
sections, in particular, the vulnerable sections. This has easily been a very significant
electoral issue in both provincial and national elections.
III. Select economic indicators
The major macroeconomic indicators for the last seven years are given in the Table 2
(attached) which broadly summarizes the quantitative achievements.
GDP growth
Over the last four years during 2003-07, the Indian economy has entered a high-growth
phase, with the GDP growth averaging 8.6 per cent per annum. The acceleration of growth
during this period has been accompanied by a significant moderation in volatility, especially
in industry and services sectors. The structure of domestic output has distinctly shifted in
favor of the services sector, while growth in industry is also accelerating. Indian industry
appears to have responded well to global competition through restructuring and technological
upgradation in recent years. India's growth is mainly driven by domestic consumption, which
contributed, on an average, to almost two-thirds of the overall demand.
Saving and investment balances
A noteworthy feature of the ongoing structural transformation of the Indian economy is the
significant increase in domestic saving and investment rates. Domestic investment rate
increased from 24.3 per cent in 2000-01 to 33.8 per cent in 2005-06 and domestic saving
rate from 23.7 per cent in 2000-01 to 32.4 per cent during 2005-06. The household sector
continued to be the major contributor to gross domestic saving with its saving rate placed at
22.3 per cent in 2005-06, while on account of rise in profit, the saving rate of private
corporate sector rose to 8.1 per cent in 2005-06. The public sector, which started posting
positive saving beginning 2003-04, recorded a saving rate of 2.0 per cent in 2005-06 on
account of continuing fiscal improvement as against a negative saving rate of 1.7 per cent in
2000-01. It may be noted that over 95 per cent of investment is financed by domestic
savings. Given the fact that Indian per capita income is increasing rapidly and policy efforts
towards financial deepening for achieving a more inclusive growth are underway, savings
rate in India could even rise further in the medium to long term. The level of saving rates
should help continue to finance the investment needs of the economy domestically, without
undue dependence on foreign savings.
Productivity and efficiency
In tandem with acceleration in the rate of investment in the economy, there has been
evidence of a pickup in productivity and efficiency of capital use. Some of the recent studies
relating to India have indicated an increase in total factor productivity (TFP) growth in recent
years. For instance, Rodrick and Subramanian, in an IMF working paper of 2004, point out
that India seems to have a large amount of productivity growth from relatively modest
reforms. A more recent paper by Barry Bosworth, Susan Collins, and Arvind Virmani (2007)
confirms this trend. They find that output per worker grew only 1.3 per cent annually during
1960-1980, when GDP growth was also at a low of 3.4 per cent. TFP growth was barely
above zero, according to their calculations, indicating that growth in output was almost
entirely driven by growth in inputs. In contrast, growth in output per worker nearly tripled to
3.8 per cent during 1980-2004, while TFP increased ten-fold to 2 per cent. The evidence of
an increase in the growth of labour productivity is also available from other studies
(Economic Intelligence Unit, 2007). A Study by Tata Services (2003) found that for the
allIndia manufacturing sector, labour productivity (output per unit of labour) has increased
significantly during the post-reform period, compared with the pre-reform period.
Poverty and employment
The sustained economic growth since the early 1990s has also been associated with some
reduction in poverty. Based on uniform recall period consumption distribution, the proportion
of people living below the poverty line declined from 36 per cent in 1993-94 to 27.8 per cent
in 2004-05. There is also evidence of pick-up in employment growth from 1.57 per cent per
annum (1993-94 to 1999-2000) to 2.48 per cent per annum (1999-2000 to 2004-05).
According to some reports and other anecdotal evidence, the benefits of recent surge in
growth rate of GDP are not just restricted to large cities, but people in other urban and semi
urban areas are also gaining. There is some evidence of reduction in under employment and
disguised unemployment in the informal sector.
Money, prices and credit
The high growth in GDP in recent years has been accompanied by some moderation of
inflation to an average of 4.9 per cent during 2003-07. Historically, India has not seen very
high inflation. The headline inflation rate, in terms of the wholesale price index, has declined
from an average of 8.2 per cent during the period 1980-81 to 1990-91 to 6.2 per cent during
the post crisis period, i.e., 1992-93 to 2006-07, with a sharper moderation in the recent
period.
During 2006-07, money supply (M3) increased by 21.3 per cent on a year-on-year basis and
was well above indicative projections for the year. It largely reflected the surge in capital
flows in the country. Non-food credit extended by the scheduled commercial banks (SCBs)
increased by 28.4 per cent during 2006-07 on top of 31.8 per cent in the previous year. The
growth of bank credit has favoured retail lending, particularly housing, real estate, trade,
transport and professional services and non-banking financial companies - sectors which
hitherto were not significant in the credit market. These developments led to a lively debate
on the signs of overheating in the economy but subsequent moderation in inflation has
diffused the attention.
IV. Monetary policy and regulatory framework
As regards the framework of monetary policy, the basic objectives of monetary policy,
namely price stability and ensuring credit flow to support growth, have remained unchanged
in India. Of late, considerations of macroeconomic and financial stability have assumed an
added importance in view of increasing openness of the Indian economy.
In India, broad money (M3) emerged as an intermediate target from the mid-1980s based on
the premise of a stable relationship between money, output and prices. In the late 1990s, in
view of ongoing financial openness and increasing evidence of changes in underlying
transmission mechanism with interest rates and exchange rates gaining in importance
vis-àvis quantity variables, the Reserve Bank adopted a multiple indicator approach in April 1998
whereby interest rates or rates of return in different financial markets along with such data as
on currency, credit, trade, capital flows, fiscal position, inflation, exchange rate etc. are
juxtaposed with the output data for drawing policy perspectives. The liquidity management in
the system is carried out through open market operations (OMO) in the form of outright
purchases/sales of government securities and daily reverse repo and repo operations under
a Liquidity Adjustment Facility (LAF) and this has emerged as the main instrument for
interest rate signalling in the Indian economy. In the context of large capital flows and
sterilisation, the availability of policy instruments to manage liquidity has been strengthened
further with open market operations through Market Stabilisation Scheme.
While the preferred instruments are indirect, and varied, there has been no hesitation in
taking recourse to direct instruments also, if circumstances warrant them. In fact, complex
situations do warrant dynamics of different combinations of direct and indirect instruments, in
multiple forms, to suit the conditions - especially the transmission mechanism.
Similarly, while there is considerable merit in maintaining distinction between monetary and
prudential policies of the central bank, the Reserve Bank did not hesitate to enhance the
provisioning requirements and risk weights for select categories of banking assets, namely
real estate, housing, consumer finance and capital market exposures. There has also been
close monitoring of off-balance sheet exposures of banks. Detailed guidelines have been
issued, for consultation, on product, accounting and prudential aspects of credit derivatives.
A framework for governing banks' linkages with systemically important deposit taking and
non-deposit taking non banking financial companies has also been put in place.
More generally, Reserve Bank's approach has been to recognise the positive contributions
that financial innovations make to enhance efficiency of financial intermediation. At the same
time, Reserve Bank considers, in a dynamic setting, appropriate safeguards to ensure
stability, taking account of the prevailing governance standards, risk management systems
and incentive frameworks in the foreign, public, private and cooperative banks as also
related non-banks. Overall, these progressive but cautious policies have contributed to both
efficiency and stability of the financial system and enables current growth momentum in an
environment of macro stability.
Some of the important factors that shaped the changes in monetary policy framework and
operating procedures in India during the 1990s were the delinking of budget deficit from its
automatic monetization by the Reserve Bank, deregulation of interest rates, and
development of the financial markets with reduced segmentation through better linkages and
development of appropriate trading, payments and settlement systems along with
technological infrastructure. With the enactment of the Fiscal Responsibility and Budget
Management Act in 2003, the Reserve Bank has withdrawn from participating in the primary
issues of Central Government securities with effect from April 2006. The recent legislative
amendments enable a flexible use of the cash reserve and statutory liquidity requirements for
banks, without being constrained by a statutory floor or ceiling on the levels of such
prescriptions by the Reserve Bank.
V. Fiscal policy reforms and public debt management: centre and States
The fiscal system prevalent in the beginning of the 1990s was characterised by a sustained
high fiscal deficit and mounting debt accumulation giving rise to inflation, financial repression,
and overall deterioration in the macroeconomic fundamentals of the economy. The average
gross fiscal deficit of the central government as per cent to GDP during the decade of 1980s
was 6.8 per cent as against 3.8 per cent in the 1970s. A positive outcome in recent years is
the marked improvement in the health of Government finances with the adoption of the Fiscal
Responsibility and Budget Management (FRBM) Act, 2003 by the Central Government and
Fiscal Responsibility Legislation (FRLs) by several State governments.
RBI and States
Under India's federal system of government, the Constitution allocates the revenue powers
and expenditure functions between the Central and State Governments. In general, the
functions required to maintain macroeconomic stability and international relations are
assigned to the Centre, while provision of public services such as law and order, internal
security, public health, sanitation, water supply and agriculture is largely entrusted to the
States. Both government layers share responsibility for education, health and infrastructure,
though States have a critical role.
In India, borrowing by the State governments is subordinated to prior approval by the
national government. This is embodied in Article 293 of the Indian Constitution, under which,
any State Government that is indebted to the Central Government, requires prior approval for
borrowings. Central approval is embedded in the procedure for sale of State Government
securities, and therefore, cannot be violated. Furthermore, State Governments are not
permitted to borrow externally, unlike the Centre.
The Reserve Bank plays two crucial roles in relation to the Indian fiscal system, namely as
the banker to and the debt manager of both Central and State Governments. The RBI Act
allows the RBI by agreement with a State Government to undertake its banking operations
and management of its public debt. While undertaking the role of banker for both the Central
and State governments, the RBI also provides temporary support to tide over mismatches in
their receipts and payments in the form of Ways and Means Advances (WMA).
The Reserve Bank has been organizing a biannual Conference of State Finance Secretaries
since November 1997. This Conference, right from its inception, has provided a very useful
forum for interaction among all the stakeholders (State Governments, Central Government
and the Reserve Bank) on matters related to State finances and arriving at consensual
solutions for issues of policy and operational significance. Among the areas that were
deliberated, the more important one's relate to fiscal responsibility legislations at State levels;
standardisation of budgetary, accounting and transparency practices; cash management;
management of Consolidated Sinking Fund and Natural Calamities Fund; evaluation of fiscal
guarantees etc. The Reserve Bank is proactive and responds from time to time, to the needs
of States, as evident from two recent moves.
Faced with accumulation of large surplus cash balances and a negative spread earned on
the investment of such balances, some State Governments had approached the Reserve
Bank to arrange for the buy-back of their outstanding State Development Loans (SDLs).
Accordingly, the Reserve Bank formulated a general scheme for the buy-back of SDLs with
the concurrence of the Government of India. Following the recommendations of the Twelfth
Finance Commission, external loans would be passed on to the States (in rupee terms) on a
back-to-back basis. Consequently, the State Governments would now have to bear the
foreign exchange risk in the context of such loans. Again, at the behest of the State
Governments, the Reserve Bank recently organized a workshop on the management of
foreign exchange risk, for the benefit of State Government officials.
The Reserve Bank interacts with States on several other fronts especially in regard to
lending to agriculture, small industries, weaker sections, depositor protection, financial
inclusion, financial literacy, responding to natural calamities etc. mainly through the regional
offices.
Management of public debt
The aggregate stock of public debt of the Centre and States as a percentage of GDP is high,
currently at around seventy five per cent. There are, however, several unique features of
management of public debt in India, which are noteworthy. First, States have no direct
exposure to external debt. Second, almost the whole of public debt is local currency
denominated and held almost wholly by residents. Third, public debt, of both Centre and
States is actively and prudently managed by the Reserve Bank of India ensuring comfort to
financial markets without any undue volatility. Fourth, the government securities market has
developed significantly in recent years in terms of turnover, depth and participants, and
significant further improvements are underway.
Fifth, contractual savings supplement marketable debt in financing deficits. Finally, direct
monetary financing of primary issues of debt has been discontinued since April 2006. Hence,
the high stock of public debt relative to GDP has not so far been a matter of concern as far
as stability is concerned, while it is recognised that long term sustainability would call for a
gradual reduction to prudent levels.
VI. External sector reforms
Benefiting from a calibrated and sequenced strategy of liberalisation, India's external sector
has become more resilient. Exports have been growing at an average rate of around 25 per
cent during the last three years, while imports have grown by around 35 per cent during the
same period. The current account remained in surplus during 2001-02 to 2003-04, before
turning into a modest deficit since then. There was a significant strengthening in the capital
account resulting in continued accretion to the foreign exchange reserves, which was around
US$ 228.8 billion as on August 31, 2007. As could be seen from the table 2, there has been
considerable improvement in liquidity and sustainability indicators of external debt.
The exchange rate of rupee became market determined from March 1, 1993 and by August
1994 India became current account convertible by accepting Article VIII of the Articles of
Agreement of the IMF. There was simultaneously a significant rationalization of the tariff
structure in a gradual manner providing opportunity for domestic industry to equip itself to
face global competition. For instance, the customs duty on non-agricultural products has
come down from 150 per cent in 1991-92 to 10.0 per cent in 2007-08. A qualitative change
was brought about in the legal framework for liberalization by the enactment of the Foreign
Exchange Management Act (FEMA) in June 2000. With this, the objectives of regulation
have been redefined as facilitating trade and payments as well as orderly development and
functioning of foreign exchange market in India.
The extent and timing of capital account liberalization is properly sequenced with other
concomitant developments such as strengthening of banking sector, fiscal consolidation,
market development and integration, trade liberalization, and the changing domestic and
external economic environments. It is also recognized that there may be links between the
current and capital accounts and hence procedures are in place to avoid capital flows in the
guise of current account transactions. Further, a hierarchy is established in the sources and
types of capital flows. The priority has been to liberalize inflows relative to outflows, but all
outflows associated with inflows have been totally freed. Among the types of inflows, foreign
direct investment is preferred for stability while excessive short-term external debt is
eschewed. A differentiation is made between corporates, individuals, and banks.
Operationally, the process of managing the capital account consists of operating two routes,
namely automatic and non-automatic. Consistent rebalancing in the desired direction is done
by expanding the automatic route and by moving most of the prohibited transactions to the
non-automatic but approval route and at a later stage, to an automatic or deregulated
regime.
There has been a significant liberalisation of the policy framework with regard to capital
outflows over the past few years. Each country has to design its policy regime for capital
outflows keeping in view the specific country context, especially characteristics of the real
sector, and not merely the contextual level of inflows and extant absorptive capacity of the
economy. First, the current regime of outflows in India is characterised by liberal but not
incentivised framework for corporates to invest in the real economy outside India, including
through the acquisition route. The regime has served the country well since Indian
corporates are increasingly able to establish synergies with overseas units, to make up for
lack of scale that has been a legacy problem in India, and to quickly acquire domain
knowledge through acquisition. Second, significant liberalisation of outflows by individual
households has been implemented following recommendation of the Committee on Fuller
Capital Account Convertibility (Chairman: Shri S. S. Tarapore, 2006). Further liberalization
here would be done in the light of some international experience which shows that resident
individuals often precede overseas investors in initiating outflows when the perceptions in
regard to domestic economy's performance or stability appear to turn adverse. Third, as
regards the regime for outflows through financial intermediaries, the approach is
characterised by caution and quantitative stipulations whereby both prudential considerations
and compulsions of management of capital account are relevant.
VII. Financial sector reforms
Major policy measures in the financial sector relate to phased reductions in statutory
preemption like cash reserve ratio and statutory liquidity requirements and deregulation of
interest rates on deposits and lending, except for a select segment. The diversification of
ownership of banking institutions is yet another feature which has enabled private
shareholding in the public sector banks, through listing on the stock exchanges, arising from
dilution of the Government ownership.
The banking sector reform 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. The regulatory framework in India, in addition to prescribing
prudential guidelines and encouraging market discipline, is increasingly focusing on ensuring
good governance through "fit and proper" owners and directors of banks. The Reserve Bank
has issues detailed guidelines on ownership and governance in private sector banks
emphasizing diversified ownership. The Reserve Bank has also provided a significant thrust
to implementation of information technology in the banking sector.
Foreign direct investment in the private sector banks is now allowed up to 74 per cent,
subject to the prescribed guidelines. Again, 100 per cent foreign direct investment is allowed
in 19 activities under the automatic route in Non-Bank Financial Companies (NBFCs). There
are minimum capitalisation norms for such investments. Besides, 100 per cent NBFC
subsidiary can also be established subject to clearance by Foreign Investments Promotion
Board (FIPB), Government of India. There has been noticeable increase in the interest of
foreign entities to acquire stakes in NBFCs. Policy initiatives have been taken in recent past
to ensure that such NBFCs adhere to regulatory prescriptions spelt out for them.
In the cooperative segment, the urban cooperative banks (UCBs) had been suffering from
the problem of multiple supervisory/regulatory authorities, as also the challenge of
reconciling the democratic character with financial discipline. Therefore, several structural,
legislative and regulatory measures have been initiated in recent years for urban co-
operative banks with a view to evolving a policy framework oriented towards revival and
healthy growth of the sector. A vision document for their healthy growth has been formulated.
Restructuring of the larger weak banks has commenced and is well under way. Similarly,
issues relating to rural co-operative banking structures and regional rural banks (RRBs) have
been considered actively and comprehensive measures have been planned and some of
them are under implementation.
Financial markets reforms
Financial markets in India in the period before the early 1990s were marked by administered
interest rates, quantitative ceilings, statutory pre-emptions, captive market for government
securities, excessive reliance on central bank financing of fiscal deficit, pegged exchange
rate, and current and capital account restrictions. A wide range of regulatory and institutional
reforms were introduced in a planned manner over a period to improve the efficiency of
financial markets. These inc