receivables, credit protection etc. factoring helps them to free their resources and have a one stop arrangement for various business needs enabling smooth running of their business. 30. the reserve bank has recently also taken the initiative of mooting a “ trade receivables and credit exchange ” for financing of micro, small and medium enterprises, which is under development stage. the exchange will bring together the msmes, the factors and the corporate buyers under one platform whereby msme ’ s bills against large companies can be accepted electronically and auctioned so that msmes are paid promptly. the objective is to build a suitable institutional infrastructure which will not only enable an efficient bis central bankers ’ speeches and cost effective factoring / reverse factoring process to be put in place, but also ensure sufficient liquidity is created for all stakeholders through an active secondary market for the same. role of nbfcs in vehicle financing / second hand vehicle financing 31. talking about the niche sectors that nbfcs cater to, vehicle financing especially second hand vehicles need special mention. certain nbfcs that are classified as asset finance companies have gained expertise in this segment and play a significant role in providing a livelihood to customers who are drivers. from the reserve bank ’ s side, to encourage the productive activity that these nbfcs are engaged in, we have accorded certain additional dispensations to them in the form of enhanced bank credit, higher exposure norm ceiling and provision of ecb under automatic route for leasing related to infrastructure. role of nbfcs in infrastructure financing 32. infrastructure finance companies and infrastructure debt funds are nbfcs exclusively into financing the infrastructure sector. some of these companies have asset books running to lakhs of crores of rupees and are experts in long term project financing. recognising their significance, the reserve bank has given special dispensations in the form of enhanced bank credit, higher exposure norm ceiling and provision of ecb under automatic route for on - lending to infrastructure sector. the asset liability pattern however, is a matter of concern in the case of ifcs as these are lending long term against comparatively shorter term liabilities. the regulatory challenges 33. so, you may wonder, if the nbfcs are performing such a wonderful service to the economy, by being partners in financial inclusion, providing niche financing in the areas like infrastructure, factoring, asset financing, etc. what is the concern that the reserve bank can have? why have you indicated in

deepak mohanty : monetary policy framework in india – experience with multiple - indicators approach speech by mr deepak mohanty, executive director of the reserve bank of india, at the conference of the orissa economic association, baripada, orissa, 21 february 2010. * * * the assistance provided by shri binod b. bhoi is acknowledged. 1. i am honoured to deliver the 2nd professor baidyanath mishra lecture. prof. mishra is a multi - faceted personality : an economist, an educationist and an institution - builder. above all, he is a great teacher who inspired generations of students. i thank the orissa economic association for giving me this opportunity. 2. i will set out how the framework of monetary policy has evolved over the last two and half decades. first, i will touch upon the objectives of monetary policy and then discuss briefly about how monetary framework has evolved globally before dwelling on the indian experience. i will conclude with an overall assessment of the monetary policy regime in india. i. objectives of monetary policy 3. central banks derive their objectives from their respective mandates. monetary policy could have either a single objective of price stability or multiple objectives besides price stability. in the literature and in practice, price stability is considered as the dominant objective of monetary policy. 4. the preamble to the reserve bank of india act, 1934 delineates the basic functions of the bank as “ to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in india and generally to operate the currency and credit system of the country to its advantage ”. the objectives of monetary policy evolved from this broad guideline as maintaining price stability and ensuring adequate flow of credit to the productive sectors of the economy. in practice, monetary policy endeavoured to maintain a judicious balance between economic growth and price stability. 5. the question is how do we define price stability? price stability does not mean zero inflation. it is considered as a low and stable order of inflation. this is because both high inflation and deflation impose costs on the economy by way of loss of output and misallocation of resources. for advanced economies, an inflation rate of about 2 per cent is equated with price stability. for an emerging market economy ( eme ) like india, going through significant structural changes, a slightly higher rate of inflation which allows relative prices to adjust smoothly can be considered appropriate. the chakravarty committee had defined an inflation