very popular because the rbi has moved away from a focus on the wpi to a focus on cpi. even the market for cpi indexed iibs has been lukewarm. the moderate investor interest perhaps reflects the disinflationary bis central bankers ’ speeches environment, where inflation protection is less sought after. also, unlike the more taxprotected gold monetization bonds, the cpi indexed iibs are not fully tax protected against inflation. going forward, a level playing field on taxes is warranted for all instruments, so that instruments do not gain favor simply because they get better tax treatment. the lesson from these examples is that financial innovation needs support, not to create tax or regulatory arbitrage, but so that appealing features are encouraged. innovation also requires tinkering, to modify what does not work until something more appealing can be found – the first versions of interest rate futures were not attractive, but later versions have succeeded. this is why the rbi has moved to a sandbox approach, where we are liberal towards early product innovations so long as they are not clearly problematic, regulating more carefully only when interest picks up and the product looks like it might become of systemic importance. finally, an important function for the regulator in encouraging financial innovation is to create the necessary infrastructure. for instance, a number of financial contracts are structured off benchmarks. rbi has encouraged the setting up of the financial benchmarks india pvt. limited ( fbil ) which is building a series of market benchmarks. i am hopeful that these will soon be used in innovative financial contracts. internationalization as a current account deficit country, india needs financing from abroad. ideally, we would like to attract risk capital, which is in short supply in this country. this means encouraging foreign direct investment, as well as equity investment. foreign investors can also help deepen debt and derivative markets as they contribute to price discovery and liquidity. not all domestic entities should issue claims held by foreign investors. ideally, of course, companies should be left to make decisions about what currency they borrow in, and how much they hedge, but given our weak bankruptcy system, there is moral hazard built into unhedged foreign borrowing – if the rupee appreciates, the promoter takes all the upside associated with paying the low dollar interest rate and the now - lower principal, if the rupee depreciates, the occasional unscrupulous promoter goes to his indian bankers and asks them to bail him out. this is why

the causes of sickness are both internal and external. the major causes are limited financial resources, lack of organisational, financial and management skills and expertise, diversion of funds, diversification / expansion before stabilisation, non - availability of power supply shortage of raw materials, marketing difficulties, delayed and inadequate credit, globalisation and liberalisation of the economy, obsolete technology, inadequate infrastructure, etc. with a view to ensuring that potentially viable sick ssi units are provided with the timely and adequate assistance by all agencies concerned, there are state level inter institutional committees ( sliic ) constituted in each state involving state government, financial institutions, commercial banks and sidbi. ssi associations are also invited to the meetings of this committee. a sub - committee of sliic has also been set up in each state to examine the individual cases referred to it for rehabilitation. to address the incidence of growing sickness in the sector rbi has recently issued a complete set of revised guidelines drawn up on the basis of the recommendations of a working group constituted by it for the purpose. policy initiatives the indian industry remained within an inward oriented policy framework up to the 1990s. with globalisation, liberalization, financial and real sector reforms, the country adopted an outward looking approach. at present, both the industrial sector in general and ssi sector in particular are exposed to international competitive environment. however, the most significant aspect is that india has evolved a sound institutional set up for financing of the ssi sector. new industrial policy was announced as part of the structural reforms in 1991, which eliminated various controls on the industrial sector, provided a greater role for the private sector and encouraged inflow of foreign investment and technology, but also contained specific initiatives for the development of the ssi sector. the pace of de - reservation of ssi items, needs to be accelerated so as to ensure that size does not remain a constraint to higher production, cost - efficiency and technological upgradation. the case for de - reservation of the ssi sector becomes even stronger in the light of the experience of south - east asian economies which indicates that ( a ) their export basket transformed from labour - intensive and relatively low technology products ( textiles, clothing, shoes, toys, etc ) in the 1980s to higher - technology consumer goods and capital - intensive goods ( capital goods and petrochemicals ) in the 1990s and ( b ) production of such consumer goods could be achieved by large - scale final assembly operations coupled with copious out - sourcing to