while prohibiting zero - cost structures. 49. the cost reduction structures, introduced in 1996 have been used by the corporates in hedging their currency exposures. the products inherently involve a trade - off between reduction in the cost of hedging and a corresponding increase in risk. the concerns relating to proper valuation, mis - selling of such products and other irregularities that emerged in the recent past, have forced the reserve bank to re - evaluate the propriety of allowing such products in india. 50. in response to the draft guidelines, many corporates and industry associations fedai and fimmda have represented that prohibiting cost reduction structures will seriously impede the dynamic forex risk management operation of corporates and that their competitiveness in the global markets, as their counterparts have flexibility in using such products internationally. additionally, if such structures are banned, some corporates may not hedge their exposures due to costs, and this may result in aggregation of open currency risk in the system, which is riskier than allowing hedging within a range. it has been suggested that structures may be allowed with safeguards, such as the pay off of such a strategy lies between an unhedged exposure and an exposure hedged through a forward contract, allowing the products only against underlying exposures, not allowing leverage structures, limiting to corporate with threshold turnover and net worth, etc. 51. we are examining the suggestions and the fedai conference would be an appropriate forum to debate on the concerns and possible safeguards for such structures. suitability and appropriateness – the complex products should be consistent with the users ’ business, financial operations, skill and sophistication, internal policies as well as risk appetite. inadequate understanding of the risks and future obligations under the contracts has led to many legal disputes. some users too have feigned ignorance of the products and deemed it unsuitable only in the event of losses crystallising. the developments have necessitated greater sense of responsibility and circumspection on the part of the banks and the users. in view of the same, it is worth debating that if at all such products are to be permitted it may be restricted to users with robust risk management systems, corporate governance, accounting and disclosure practices. possible safeguards in this regard could be adoption of international accounting standards minimum net worth criteria, listing, etc. extent of corresponding increase in risk and net receipt of premium – the extant guidelines permit cost reduction structures subject to the condition that there is no net receipt of premium

“ getting credit ”, we faired comparatively much better at 36th position. 7. as we deliberate on ways of financing india ’ s growth, let me place some pertinent points for further reflections and begin with talking about what should be our growth model. what kind of growth do we want? 8. the growth model that we should pursue has also been a subject of great debate amongst the policy makers. should it be a manufacturing driven, export - led growth, should it be infrastructure led growth or one driven by domestic consumption? in fact, all models have their respective pluses and minuses. we have the examples of current chinese meltdown and the asian financial crisis of late 90s which, in part, resulted from heavy investment in infrastructure creation which ceases to provide positive returns beyond a point or too much reliance on export - led growth. perhaps, we might want an equitable mix of all – growth led by increase in domestic consumption, investment in infrastructure and manufacturing. i believe we are well past a period when we could focus exclusively on being a world manufacturing hub for driving growth. to my mind, we would do well to aspire for a growth model which predominantly focuses at domestic manufacturing and global service delivery, which would be much more sustainable. it is also essential to realize that growth can be sustainable only if it is inclusive in nature and outlook. the inter se disparities or skewness in development between regions, communities etc., is neither desirable nor good for the society. key challenges to growth 9. having discussed about the potential growth rate for india and the model of growth that we would like to pursue, let me highlight some key challenges to achievement of the potential growth rate. although there are also certain socio - political reasons for slower growth, from an economic stand point, i feel following are some of the major challenges : • lack of investment in infrastructure - both physical and financial • high level of financial exclusion • skill gap, which has implications for employability • decline in gross capital formation & dwindling domestic savings rate what needs to be done? 10. government as well as rbi have been mindful of these challenges and have been taking steps to overcome them in a sustainable manner. it is also worth emphasizing here that there needs to be a fine balance struck between promoting investment in “ capital intensive ” and “ labour intensive ” companies, whether in industry or in service segments. this is necessary keeping in view the sheer number of educated workforce in the country. over a