shyamala gopinath : recent developments in forex, money and g - sec markets account and outlook address by ms shyamala gopinath, deputy governor of the reserve bank of india, at the 16th national forex assembly, cochin, 13 august 2005. * i. * * introduction it gives me immense pleasure to address this distinguished gathering of forex professionals from all over the country. coming to these visually beautiful surroundings, it is easy to get oblivious to the fact that this state is a large contributor of ‘ invisibles ’ for our balance of payments. both tourism earnings and private remittances have had a significant impact on kerala ’ s economy and the state has benefited substantially as a result of liberalisation since 1991. putting numbers to this gain, as per a study by the centre for development studies, trivandrum1, the average yearly gain to the state since the start of reforms has been in the range of rs. 2000 crore. i begin this address, ladies and gentlemen, in the background of this interesting perspective. forex market in india is undergoing rapid transformation and exciting things are engaging us professionally. at the same time, it can no longer be seen in isolation – it is increasingly getting integrated within the broad ambit of financial markets. over the last fifteen years, momentous changes have happened in the financial sector, which are well known. while the initial reforms concentrated more on the institutions like banks or non - banking financial companies, the recent years have witnessed emphasis on financial markets. with the financial markets in india acquiring greater depth and maturity in the recent years, the issue of greater integration of various market segments among themselves, on the one hand, and with the global markets, on the other, has come to the forefront. in my address i intend to take stock of the major initiatives that have been taken to reform the financial markets in india in the past, reflect on the present scenario and articulate the future course of reforms. as you all are aware, the development of financial markets in india has been pursued for bringing about a transformation in the structure, efficiency, and stability of markets as also facilitating integration of markets. the emphasis has been on strengthening price discovery, easing of restrictions on flows or transactions, lowering of transaction costs, and enhancing liquidity. during the post - reform period, the structure of financial market has witnessed a remarkable change in terms of the types, the number and the spectrum of maturity of financial instruments traded in various segments of money,

expert group on foreign exchange markets in india in 1995 ( chairman : shri o. p. sodhani ) and the committee on capital account convertibility in 1997 ( chairman : shri s. s. tarapore ). with the transition to a market - determined exchange rate system in march 1993 and the subsequent gradual liberalisation of restrictions on various external transactions, ensuring orderly conditions in the forex market in india has become one of the key objectives. the reserve bank has undertaken various measures towards development of spot as well as forward segments of foreign exchange market. as a result, the average gross daily turnover increased to us $ 12. 1 billion in 2004 - 05 ( april - march ) from us $ 3. 7 billion in 1996 - 97. the top 30 banks in india account for approximately 90 per cent of the overall turnover in the market. approach to reforms in foreign exchange market while the operating environment is no doubt relatively more flexible in countries with current account convertibility and open capital accounts, the approach in other countries, the approach has remained cautious with a clear emphasis on the need for safeguards against potential financial instability that could arise due to excessive speculation in the foreign exchange market even when macroeconomic fundamentals are reasonably good. the indian approach to opening the external sector and developing the foreign exchange market in a phased manner from current account convertibility to the ongoing process of capital account liberalization is now considered a prudent and desirable approach for liberalization. the recent past has witnessed significant changes in the external sector policy approach of the reserve bank. the focus of the measures has been to gradually dismantle controls and provide an enabling environment to all entities engaged in external transactions. the approach to liberalisation, adopted by reserve bank has been characterised by greater transparency, data monitoring and information dissemination and to move away from micro management of foreign exchange transactions to macro management of forex flows. the emphasis has been to ensure that procedural formalities are minimised so that individuals are able to obtain hassle free remittances facility for all current account transactions and exporters and other users of the market are able to concentrate on their core activities rather than engage in avoidable paper work. besides, the reserve bank has also striven to ensure that strong know - your - customer ( kyc ) guidelines are in place. in this enabling environment, today the indian corporate sector is reaching out to the global production and distribution networks not only through greater orientation towards exports or imports but also through strategic takeovers, overseas acquisitions