context of an appropriate interest regime should factor in several elements viz. treatment of interest - income vis - a - vis dividend income and of contractual savings vis - a - vis marketable debtinstruments. the statement of finance minister in the latest budget speech that an expert committee will be appointed to provide recommendations on the issue of better system for determination of the interest rates governing provident funds and small savings is welcome. it is hoped that the expert committee would address broader issues such as tax - regimes affecting all forms of savings, especially the possible distortions between debt and equity instruments. however, interest rate flexibility should not be taken to mean a continuous downward movement in interest rates. in fact, the reference in the economic advisory council report to stable real rates of interest does imply that depending on the inflation rates, the nominal interest rates would move up and down. furthermore, it is necessary for banks to appreciate the need for reduction in their interest - spreads. cost of debtfunds to investors can come down, without hurting the saver, the goose that lays golden eggs, only and only as the interest - spreads of banking sector comes down further. third, the issues of prudential requirements including those relating to weak banks, capital adequacy etc. here, the public sector banks continue to be on a different footing from private sector banks and approaches for reform do vary. in any case, impressive progress has been made in imparting a supervisory environment conducive to enhancing efficiency while maintaining stability of the system. the banking system of india has shown remarkable resilience in the face of several challenges and changes in external environment. in the medium term perspective, the main challenge will be to subscribe to the proposed new basel capital accord meant to replace the existing 1988 capital accord. the new accord is likely to be finalised by the end of 2001 and mandated for adoption by 2004. it should be clear to all concerned that the new accord is likely to be more complex and more binding, warranting early and vigorous preparatory work by both banks and rbi. fourth, the issue of competition between banks and between banks and non - banks, and the related issue of a level playing field. the rbi ’ s policy framework in regard to approach to universal banking has already been spelt out. an approach to reform of urban cooperative banks and rural cooperatives has been drawn up with the recommendations of the madhava rao committee and the jagdish capoor committee. there are significant

steadily increasing their market shares. this may explain the diverging results we find across a variety of studies on developments in the competitive landscape in the euro area. 5 studies that focus exclusively on the market power of firms located in the euro area find no noticeable change in the euro area ’ s competitive landscape. by contrast, studies that consider all firms that compete in the euro area suggest that there is declining competition in the euro area. this declining competition is most likely being driven by these global firms. macroeconomic implications of market power market structure and market power have gone from being a field studied by microeconomists to one studied by both micro - and macroeconomists. there are good reasons for this : a change in market power could have important macroeconomic implications. for the euro area, available evidence suggests that the market power of firms located within the single currency area has remained broadly unchanged in recent years. the positive side of this is that there is little evidence that the euro area has seen a rise in “ bad ” market power – market power which results in productive and allocative inefficiencies. however, on the negative side, the euro area has also not seen the emergence of superstar firms – highly productive large firms with rising market shares. instead, the euro area may be facing increasing competition from large global firms. moreover, in an increasingly dynamic and digitised world, significant and rapid changes in market structures across industries may occur at any point in time. the digital transformation could change production and distribution methods and affect how firms compete with each other. digital technologies can reduce the costs of scaling up production and entering certain markets, even across borders. and some digital products may be replicable at close to zero marginal cost. this can allow innovative start - ups to grow and gain market share rapidly once they bring a product to market, often with few employees, few tangible assets and a 3 / 5 bis central bankers'speeches limited geographical footprint. 6 at the same time, the development of digital technologies may entail high upfront research and development costs. in such an environment of high fixed costs but near zero marginal costs, it may be more natural to see concentration ratios and markups rising. temporary market power can, in these conditions, be desirable as it would incentivise innovation, which could help to stimulate productivity and potential growth in the economy. devising structural policies in the euro area that allow firms to adopt digital technologies and that foster innovation would therefore be important.