view of the growing integration of the indian economy and the financial system with the rest of the world, it cannot be the case that indian economy should have remained unaffected. the indian economy was collaterally affected primarily through two channels : the capital account and the trade account. while india continued to experience substantial net capital inflows, the situation changed for the worse in september / october 2008 in the wake of lehman brothers ’ bankruptcy, with substantial net capital outflows and this, in combination with widening trade account and current account deficits resulted in the decline of foreign exchange reserves of about usd 60 billion, from usd 316 billion in may 2008 to about usd 255 billion now. the trade deficit widened to usd 120 billion ( 10 % of gdp ) and current account deficit widened to usd 29 billion ( 2. 6 % of gdp ). recent fiscal and monetary policy measures because of the integration with the rest of the world, fall in export demand for indian merchandise and services, the gdp grew by 6. 7 % in 2008 - 09 compared with an average growth of 9 % plus in the previous 3 years. thus, it will be seen that the indian economy was much less adversely affected, primarily due to being driven by domestic demand which again had a very strong rural demand component. significantly, even now the rural demand continues to remain robust, especially for autos, two wheelers, tractors and fmcgs. this was all made possible because of public spending under national rural employment guarantee programme, rural self - employment programme and rural road construction programme under flagship government sponsored schemes. indeed, as a critical complement to this effort, financial inclusion initiative driven by leveraging smart card and bio - metric technology, also played a pivotal role. besides, going forward, with 400 million odd mobile phone subscribers in india, mobile banking has tremendous potential for spreading banking and financial services to rural and semi - urban areas and further economic empowerment of the rural sector. inevitably, the fiscal policy had to respond commensurately and government delivered three fiscal stimulus packages, as a result of which the fiscal deficit rose from 2. 7 % of gdp in 2007 - 08 to 6. 2 % of gdp in 2008 - 09 and is projected to rise to 6. 8 % in 2009 - 10. but, this is not a cause for concern primarily because we need to look at fiscal deficit not in isolation but in conjunction with current account deficit. thus, even though the fiscal deficit is 6. 2 %, the current account deficit at

have resulted in augmentation of actual / potential liquidity of over rs. 4. 69 trillion ( $ 93 billion ) • that liquidity is not a constraint is attested to by the fact that on an average, rbi has been absorbing through its reverse repo window roughly usd 25 billion worth of surplus rupee liquidity in the banking system. provision of forex liquidity and inflow enhancing measures • us $ swap lines of more than $ 10 billion for indian banks with overseas subsidiaries and branches available up to march, 2010. • re - institution of special market operations to meet the foreign exchange requirement of public sector oil marketing companies. • prudential limit on overseas borrowing by banks doubled. • special refinance facility for exim bank ( $ 1 billion ). • export credit refinance available to banks from rbi increased • increasing interest rate ceilings on non resident indian deposits in rupees and foreign currency. • relaxation of external commercial borrowings ( ecb ) norms – ceilings on interest rates raised, end use restrictions which had been put in 2007 - 08 to deal with large inflows relaxed. • the above various special refinance and other facilities have mostly remained unavailed of, underscoring the fact that lack of funding is not an issue ; but they were provided preemptively, nevertheless, as a backstop. regulatory measures • risk weights and provisions in bank credit to certain sectors, such as real estate, which had been increased earlier, were rolled back to pre 2005 - 06 levels. • to preserve productive value of assets otherwise viable, prudential regulations for restructured accounts were modified as a one - time measure for a limited period of time. • with regard to their need to raise capital, nbfcs were allowed to issue perpetual debt instruments qualifying for capital. • nbfcs allowed further time of one more year to comply with the increased capital to risk - weighted asset ratio ( crar ) stipulation of 15 per cent as against the existing requirement of 12 per cent. • risk weight on banks ’ exposures to nbfcs which had been increased earlier, was rolled back. • the restriction on commercial banks and all - india term lending and refinancing institutions who were not allowed to lend against or buy back cds held by mutual funds was relaxed in the context of the drying up of liquidity for cds and cps. fiscal measures • three fiscal stimulus packages launched in december 2008, january 2009, and february