find that inflation tolerance has come down. the society, the economic agents and the market participants are now reacting to a lower headline inflation, which is a good thing because if we want a sustained strong growth, it is necessary to rein in inflationary expectations. it is necessary to ensure price stability and what is the best way to ensure price stability? everybody should work towards the same goal including the rbi and that is possible when there is a consensus in this regard. there is a virtual national consensus today that tolerance to inflation has come down and that definitely people are unhappy if it is higher and so it must be brought below that level as soon as possible. this indeed is good news because the economic agents are now factoring in this consensus as a possible factor governing future policies and expectations relating to price stability. third, the changing scenario on interest rates is also good news. for long, we had planned systems and we had administered interest rates with some amount of comfort for everyone. in the last five to six years, we had reduction in the interest rates. as the interest rates went down and down over the recent years, we were not fully sensitive to the fact that there is something known as interest rate cycles. so, for the first time, the market participants have got a feel of this interest rate cycle. no doubt, the rbi has been mentioning this in its analysis, but for many it looked like the usual central bank analysis and caution - like a grandfather always cautioning to be careful while crossing the road. but the reality of the reform process is that there will be interest rate cycles even within an overall stable situation and consistent with overall macro - stability. that cycle is being experienced by the market participants for the first time, with the result that the market participants are now able to input these uncertainties more consciously and factor the type of risk they have to face in their conduct of business. so from the central bank ’ s point of view, it is our endeavour to facilitate - it is not our endeavour to say we told you so - the new environment by working together to see that the appropriate systems to withstand interest rate cycles are more consciously built. in a meeting with bankers a couple of days ago, we have more or less come round to the view that the system should be made to get accustomed to the interest rate cycles. fourth, the prospects for real sector are looking better. in the current fiscal, in terms of the numbers, the investment activity is picking up whether one talks of capital goods

while capital market helped raising ₹ 10 billion worth of equity, bonds and debentures, banks extended credit worth ₹ 207 billion in that period. during the 1980s, the corresponding figures were ₹ 233 billion and ₹ 910 billion. in the 1990s, they were ₹ 1172 billion and ₹ 3950 billion respectively and in 2000s they were ₹ 2115 billion and ₹ 34206 billion respectively. in 2013 – 14, it was ₹ 556 billion and ₹ 9, 556 billion respectively. 18. while the capital market has been disappointing, the private placement market in the past twenty years has been good. though the issues thereat had been predominantly in the form of bonds and debentures, the growth in size has been very reassuring. it gained popularity from mid 1990s ; from 1995 – 96 to 2000 – 01, this market raised ₹ 752 billion, in the next ten years, it helped raise ₹ 7614 billion and in 2013 – 14, this market raised ₹ 3899 billion. 19. thus, the primary engine for indian investments is the credit market. despite all our efforts to develop corporate debt market, and calibrated increase in foreign capital, credit market remains the bulwark of indian investment scenario. otc market 20. in india, the small size of the otc derivatives market, low level of complexity in products and regulatory structure that mandates that validity of any otc derivative contract is contingent on one of the parties to the transaction being a regulated entity, resulted in orderly derivatives market development and lessened the concerns with regard to systemic risk. the otc derivative products were introduced in a phased manner keeping in view the hedging needs of the real sector. reserve bank has focused on improving transparency and reducing counterparty risk in the otc derivatives markets and fostered development of robust market infrastructure for trading, settlement and reporting of transactions. as india is committed to implementation of the g - 20 / fsb reforms, reasonable progress has been made in implementing the otc derivative reform measures in india. the status of reforms is as under : bis central bankers ’ speeches • standardization : the process of standardization is planned to be undertaken gradually. cds transactions are standardized in terms of documentation, coupon, coupon payment date, etc. irs on overnight index swap have been standardized from april 1, 2013. other benchmarks in irs would be standardized in a phased manner. • central clearing : calibrated steps towards central clearing of otc derivative transactions are being taken. more