corporates, on their part, have shown a greater sense of responsibility in the use and repayment of the borrowed funds. a noteworthy aspect is that 4 / 6 under current guidelines relating to external commercial borrowings, indian corporates have been able to borrow significant amounts from overseas directly, based on their own credit standing. in this context, it would be useful to recall some of the important policy initiatives of the rbi relevant to bank - corporate relationship. dr. rangarajan ’ s monetary policy of april 1997 announced a package of measures permitting multiple banking arrangements for the corporates and providing greater operational freedom to the banks. dr. jalan ’ s policy pronouncements followed through this initiative with development of the money market, move towards universal banking and above all, urging the banks and corporates to put in place sound risk - management systems – particularly for market risks. in 2003, rbi issued a fair practices code to be followed by the banks which aimed at making them more responsive to the borrowers and enhancing the confidence of borrowers in the banks as a source of funds. the procedure for declaring borrowers as " wilful defaulters " has been streamlined so as to afford full opportunity to the corporates to present their viewpoint before so classifying them. recent developments that warrant a careful redesign of the bank - corporate relationship include financing by multiple banks, through several instruments including investments, and access to a wider choice of sources of finance for corporates such as capital markets and external financing. since such choices nudge towards transaction - based banker - customer relationship, these could impinge on the access to the information required by the bankers for financial assessment as also on the ability of corporates to get an assured and appropriately priced financial package. perhaps there is a need for supplementing transaction - based relationship between banks and corporates with a more active and meaningful dialogue between them. i am sure such meetings do take place even now, but it is worth exploring whether the process needs to be strengthened. in this regard, there may be an advantage in industry bodies like ficci and iba embarking upon a review of the existing practices of dialogues between the banks and their corporate borrowers to ensure and enhance trust, transparency and timeliness – the three " t " s of banking. such a review could perhaps also promote healthy competition amongst banks and add to the comfort of the corporates too. the corporate debt restructuring mechanism ( cdrm ), which became operational since march 2002, is another platform for banker -

have a damping influence on capital spending, and in fact business confidence has moved down since the start of the year. however, order books for capital goods such as industrial machinery and other types of heavy equipment appear to be full and should support nearterm investment gains. moreover, the demand for information technology equipment is also likely to be well maintained, in part because of the recent introduction of a new generation of microprocessing chips and more - efficient large servers. current financial conditions also are supportive of business spending. corporate balance sheets are strong and flush with cash, and broad stock price indexes are up more than 10 percent so far this year. at the same time, yield spreads on corporate bonds across the ratings spectrum have been low, supported by the strong balance sheets and robust profit growth. inflation the picture painted here is one of an economy that has been growing solidly, albeit at a rate below its potential. what are the implications of this picture for inflation prospects? consumer prices excluding food and energy have accelerated over the past year, and this clearly is a concern. the core inflation rate rose 2. 4 percent over the most recent four quarters, up from 2. 0 percent for the same period a year ago. in thinking about the macroeconomic consequences of inflation, it makes sense to abstract from the prices of energy and food when the focus is on the short run. temporary shocks to food and energy prices typically don ’ t translate into changes in inflationary pressure. however, if these shocks persist, they may have an effect on core inflation and, more generally, on the economic behavior of households and businesses. core inflation can be affected when the price changes are propagated along the production chain - say from oil prices to the prices of chemicals and ultimately to the prices of goods made with those chemicals. in addition, the shocks to food and energy prices may affect inflation expectations. thus, we also pay attention to broader measures of inflation. nonetheless, the scene appears to be set for a deceleration in prices over time. one contributing factor is likely to be the slowing in activity i already discussed, which should ease the overall pressure on resources. another important factor affecting the inflation outlook is household and business expectations for inflation. as best we can judge, inflation expectations appear to be well contained : measures of longer - term inflation expectations, based on surveys and on a comparison of yields on nominal and inflation - indexed government debt, have remained within the ranges in which they have fluctuated in