shyamala gopinath : approach to capital account management – shifting contours keynote address by ms shyamala gopinath, deputy governor of the reserve bank of india, at the annual conference of the foreign exchange dealers ’ association of india ( fedai ), thimpu, 18 february 2011. * * * thank you for inviting me to this forum once again and that too in these sublime environs. only in such sublimity could the deeply spiritual concept of “ gross national happiness ” have been crystallised into a national policy mission. the theory of gross national happiness ( gnh ) established by his majesty the king of bhutan in 1972, defines bhutan ’ s development objective as improvement in the happiness and satisfaction of the people rather than growth of gross national product ( gnp ). included in gnh is a “ middle path ” approach in which spiritual and material pursuits are balanced. i can only hope that after a deep, long standing relationship with bhutan over the last several years, we are able to incorporate at least the spirit of this approach in our economic policies. i have been a inaugural speaker at the fedai conferences during past few years, in person or in absentia and it is always a challenge to select an appropriate topic in line with the overall theme of the conference. i felt really relieved that the theme for this conference attempts to capture a broader canvas, revolving around long - run growth cycles. i hope the deliberations enable us to focus more closely on the relationship between the cart and the horse so that foreign exchange flows do support growth. there are several ways in which capital flows and growth are related. first, growth expectations drive capital flows. in turn, capital flows accelerate growth. if capital flows are well absorbed by the real economy and do not generate macro - economic or financial instabilities, they stay. such capital flows augment growth over the long - run and may help income levels in developing economies converge towards the income levels in advanced economies. second, capital is likely to be attracted towards countries with high productivity growth and higher marginal productivity of capital. however, in practice this is found to be not necessarily true. third, what is generally missed is the fact that it is not just the net capital flows that drive growth, but also the gross capital flows contribute to growth. gross capital flows contribute immensely to diffusion of technology and international knowledge flows. fourth growth augmentation can also take place because capital flows enforce macroeconomic discipline and force firms

particularly those with credit concentrations in higher risk or stressed industries. finally, we will continue to be sensitive to the capacity of each bank to participate in examinations and strive to prevent undue burden on banks struggling with crisisrelated operational challenges. the road ahead like many native kansans, i am an eternal optimist, so let me end my formal remarks on a hopeful note. while the road ahead is highly uncertain, and we don ’ t yet know when the economy will return to its previous strength, america will recover from this crisis, as it has from all of our past challenges. our economic fundamentals are strong, and we have the solid foundation of the entrepreneurial spirit and resiliency of the american people. for its part, the federal reserve will continue to monitor progress and respond promptly and flexibly to support the recovery. we will closely watch economic and financial conditions, and we will use our monetary policy tools to respond as appropriate to pursue our dual mandate of maximum employment and price stability. we will also remain open to further adjustments to supervisory schedules and expectations, as needed. thank you for the opportunity to speak with you today. i look forward to our discussion. 1 board of governors of the federal reserve system, report on the economic well - being of u. s. households in 2019 – may 2020 ( washington : board of governors, may 2020 ). 4 / 4 bis central bankers'speeches