k c chakrabarty : transit path for indian economy – six steps for transforming the elephant into a tiger address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the interaction with members of the delhi chapter of the young presidents organization, new delhi, 7 december 2012. * * * assistance provided by dr. mridul saggar in preparation of this address is gratefully acknowledged. shri prabhat jain and other members of the delhi chapter of the young presidents organisation! it is my pleasure to be here amidst some of the young captains of the indian industry, who, i believe, would continue to guide their respective enterprises for a foreseeable future and make immense contributions in shaping the indian economy going forward. i have been asked to speak to you today on “ transforming the elephant into a tiger ” and in this regard, i would suggest six steps that i think are essential for such a transformation. however, at the outset, i thank the delhi chapter of the young presidents organisation ( ypo ) for inviting me to share my thoughts on this important topic. ypo has really established itself as an extra - ordinary network of young global business leaders and a think tank on issues that are critical to economy, businesses and society. i am told the network has hosted some illustrious speakers in the past and therefore, i have to live up to high expectations. i believe the decades of my experience in commercial banks and in the central bank have provided me with insights into enterprise, governance, growth and society and their impact on nation - building, which, i would share with you today and hope you find them interesting and worth emulating. let us now focus on the topic for the evening. transforming the elephant into a tiger can mean different things to different people. in reality, the state of the art in genetic engineering still cannot contemplate such a modification. an ang lee or a steven spielberg can, of course, use computer generated special effects to bring about such a transformation. but it is time to get real – given that the metaphor of elephant is used to denote the indian economy and deals with our lives and the future of our children. in 2007, dr. shashi tharoor wrote an enchanting book, “ the elephant, the tiger and the cellphone : reflections on india : – the emerging 21st century power ”. the book, ingrained in history, culture and socio - economic change, criss - crosses the indian life

although monetary data contain information which is vital for monetary policy decisionmaking, monetary developments alone will clearly not constitute a complete summary of all the economic information necessary to enable appropriate policy decisions to be taken. the governing council recognises that it is important, in parallel with the assessment of monetary growth, to look at a wide range of financial and other economic indicators, including economic forecasts. this systematic analysis of all other relevant information about economic and financial conditions will ensure that the governing council is as well informed as possible when taking monetary policy decisions. this broadly based assessment takes into account, inter alia, the information content of wage developments, exchange rates, fiscal indicators, real activity, assets and commodity prices. internal forecasts of economic activity and prices in the euro area can also contribute to the success of an appropriately forward - looking monetary policy. monitoring monetary, financial and economic developments also helps to identify the nature of shocks hitting the economy. it thereby contributes to the assessment of overall economic developments. on the basis of this thorough analysis, the interest rate will be set in a way that best serves the maintenance of price stability. the contribution of fiscal policy to a stable euro with regard to fiscal policies, i should like to stress the following main points of interest with regard to a stable euro : • a sound conduct of fiscal policies is important for the stability of the euro. • in particular, strict implementation of the stability and growth pact by each member state is vital. • the targets envisaged in the current stability programmes to bring down government deficits and debt levels represent a minimum requirement for most member states rather than a final aim. budgetary positions in the euro area as a whole have not yet been consolidated sufficiently. government debt as a percentage of gdp remains far too high on average and has only started declining hesitantly in the recent past. deficit - to - gdp ratios in a number of countries are still closer to the 3 % value set in the treaty as a reference for excessive deficits than to the medium - term balanced or surplus position envisaged in the stability and growth pact. in case of a prolonged growth slowdown we might therefore easily see deficits reaching excessive levels. in addition, deficits fell very slowly in 1998, this reduction in fiscal imbalances being the result of strong economic growth and falling interest payments rather than of genuine fiscal consolidation measures. structural and primary balances have even deteriorated. in addition, the progress in structural fiscal consolidation envisaged for the medium term appears to be