y v reddy : some comments on macro - stability in the indian economy address by dr y v reddy, governor of the reserve bank of india, at the release of the india development report 2008, by igidr, hyderabad, 3 january 2008. * * * professor nachane, professor radhakrishna, distinguished academics and friends, i am thankful to indira gandhi institute of development research ( igidr ) for granting me the honour of releasing the india development report 2008 ( idr 2008 ). this is the fifth in the series and i wish to place on record our deep appreciation of the contribution made by professor kirit parikh for the initiative and for establishing a tradition of high quality. i had the benefit of studying the idr 2008 with great interest. it has the hallmark of scholarship and objectivity. it is deep in analysis and lucid in exposition. it is comprehensive in coverage and contemporary in focus. above all, the most distinguishing characteristic of the report is its sensitivity to the issues that concern the millions of under - privileged, while not losing sight of debates centred around accelerating development. i compliment professor radhakrishna and his colleagues for an excellent empirical policy work. i commend the idr 2008 to scholars and lay persons alike. on this occasion, i will respond briefly to a very significant remark in the idr 2008 in its section titled “ overview ” since it relates to performance and prospects for the indian economy. the remark reads as follows : “ the improvement in macroeconomic stability could be due to macroeconomic policies. while the prospects of achieving high growth are good, the prospect of maintaining macroeconomic stability must be rated low. the indian economy is likely to be susceptible to periodic shocks originating from the global economy such as those related to global financial crises and volatility in crude oil prices. ” of particular interest is the comment in the idr 2008 on the prospects for maintaining stability, which have been rated low by the authors. i submit that this remark should be treated as an advice to the policy - makers to continue to accord a high priority to maintaining stability to be able to sustain the growth momentum in our country. i also agree with the comment that susceptibility arises essentially from global developments and hence i will treat this as another advice to us to be vigilant in managing the process of integration with the global economy. the current turbulence in global financial markets appears to be particularly difficult to comprehend. the turbulence originated in advanced economies and among global financial centres, pro

reports and develop audit trails. while the profession has risen to the challenge of auditing banks in an it environment, we need to explore further on how audit can overcome the challenges and exploit the opportunities of the it environment to make audit of banks more effective and meaningful. opportunities 18. i am told one of the issues agitating all of you is expansion of opportunities for the accounting profession especially in view of the growing membership of the institute. so far, bis central bankers ’ speeches you have enjoyed a monopoly position in respect of certain areas of work, for example, the audit of financial statements. the easy way out to seek and expand opportunities would be to agitate for continuation of this monopoly position. i believe this will be a mistake. rather, the profession needs to identify emerging opportunities in the market place and develop the skill needed to exploit them. 19. let me cite an example. with concepts like core banking and centralized record keeping, the relevance of the audit of branches of public sector banks ( psbs ) has significantly declined. these banks have represented to rbi that the audit of bank ’ s branches should be reduced. there is merit in this suggestion, since currently the cost of audit of psbs is significantly higher than the cost of audit of comparable private sector banks. however, the institute has been resisting this because it would mean a reduction in work for its members. 20. i believe the institute ’ s efforts in this regard are ill advised. in fact, it makes much more sense for the profession to sharpen its skills in the area of concurrent audit for which a need exists than to agitate for retention of work which does not add value. similarly, the profession has shied away from the responsibility for prevention and early detection of fraud. the need for such a service exists and if the profession does not fulfill that need, other agencies which can provide this service will displace auditors and deprive them of a potentially expanding opportunity. independence 21. let me now turn to the challenge of “ independence ”. the growth of large international firms of accountants has created an opportunity for the provision of a multiplicity of services. clients benefit from such umbrella services and attach value to it. however, this also raises the vexed question of the extent to which provision of these multiple services erodes the concept of independence. 22. the case of enron, which took down along with it the audit firm arthur andersen, comes to mind in this context. the sudden collapse of enron,