far as equity markets are concerned. a major area of managing the capital account relates to external debt and the objective in this regard is, in a way, to ensure that short - term debt obligations conform to what is known as guidotti - greenspan prescription for avoiding crisis in the emerging economies. as regards residents, a distinction is made between resident individuals, the corporates, and financial intermediaries - and a process of gradual liberalisation for each category, as appropriate, is the general approach. currently, there is virtually full capital account convertibility for indian corporates while a roadmap for the future in regard to fuller capital account convertibility is expected from a recently appointed committee on the subject, by endjuly 2006. the emphasis on balance and gradual rebalancing, keeping in view the desired direction and the need to avoid any roll - back, is thus evident in regard to the external sector and is equally significant for progress in the financial sector - basically following the visionary design of dr. c. rangarajan, one of my predecessors. a few illustrations of gradualism may be in order. first, the reserve bank was, till recently, de facto obliged to provide money to the government whenever needed, be it through overdrafts or through private placement of government debt with the reserve bank or through participation in the primary issues. these have been eliminated with effect from april of this year, but the formal process was commenced in 1997, with a memorandum of understanding with the government to eliminate automatic monetisation. more recently, private placement or participation was avoided. after being convinced that the new system works in practice, it has been possible to discharge the relevant mandate of the fiscal responsibility and budget management act with effect from april 2006. a second example relates to relaxations in foreign exchange regulations. the foreign exchange regulations act, 1973 prohibited most of the forex transactions unless exempted, and so, the initial process of liberalisation involved enlarging the list of exemptions. this culminated in replacing the above act with the foreign exchange management act in june 2000, where all transactions are permitted unless prohibited or regulated. a third example relates to competition and ownership of banks. competition has been enhanced by gradually removing administered interest rate structures, permitting entry of new private sector banks, and expanding the branch network of foreign banks. unlike in most countries, a branch of a foreign bank in india can conduct any business that a bank incorporated in india may do. on ownership, while over 70

the socio - economic conditions, is undeniable. tenth, there is often a concern about jobless growth, but in reality it is necessary to distinguish between lack - lustre growth in employment in the organised sector and expansion and intensification of employment in the unorganised sector. by way of illustration, thirty years ago, eighty per cent of engineers or doctors moved into the organised sector, while now, sixty to seventy per cent are selfemployed. this implies a shift in the balance from what may be termed as ‘ job orientation ’ to ‘ work orientation ’. despite these positive developments, the greatest challenge before the nation is to create productive work for the millions that are entering the market. finally, during the process of reform there is an initial tendency to be pro - business to get quick results while for lasting impact, policy needs to be pro - market. the processes of decision - making, often considered painfully slow in india, are gradually emphasising an increasingly pro - market stance. reforms in external and financial sectors - balance and harmony what are the dominant characteristics of reform in the external sector? on the trade account, the approach was to indicate the direction and to encourage participants to equip themselves better, notwithstanding the risks of anticipatory actions undermining the policy intent. in this context, a distinction needs to be made between promoting growth and enhancing efficiency in the context of economic reforms. trade reforms in india were designed to enable domestic firms to restructure and spread the costs of adjustments over time – thus enabling enhanced efficiency through a gradual process. growth is promoted on a longer - term basis in view of efficiency gains that were made possible by the gradualist approach. on the capital account also, there has been a continuous resetting with a view to the accelerating gradual pace of liberalisation depending on the domestic and global situation but the direction has not been compromised. while there is full convertibility on the current account, and also for all authorised inflows as well as outflows on the capital account, the process of managing the capital account consists of operating two routes, namely automatic and non - automatic. as far as foreign direct investment is concerned, consistent rebalancing in the desired direction is done by expanding the automatic route and by moving most of the prohibited transactions to the non - automatic but approval route and at a later stage, to an automatic or deregulated regime. there is full convertibility for portfolio flows through foreign institutional investors as