operation at the micro level, sometimes moving in different directions. for instance, when the general price level increases, there could be sectors where prices are coming down ; the same is the case with employment, consumption, production and investment. therefore, the micro foundations of macroeconomic analysis would not mean a one - to - one correspondence between the two. this relationship is somewhat nebulous but very important and should be viewed seriously with its significance as well as inherent limitations in mind. secondly, excessive leveraging in any conditions of financial markets is a source of potential instability. since leveraging is influenced by the cost of financing, the decisions affecting the cost and availability of credit do influence aggregate demand conditions. even if the source of financing is not bank funding, the interest rate conditions in the market definitely influence the opportunity cost of even internal resources of firms. the effectiveness of interest rate and exchange rate channels, no doubt, depends upon the depth and vibrancy of the debt and foreign exchange markets. in india, special efforts have, therefore, been made to develop these markets so that the efficacy of the transmission channel improves. in general, it may be held that in less developed financial markets, by using direct monetary instruments in conjunction with market - based instruments, the overall policy effectiveness can be improved. nominal rigidities arise in different segments of the market due to a variety of factors : the existence of organised and unorganised markets in parallel, tax regime, labour and income policies and trade union strength, level of competition or market imperfections, etc. for example, since nominal rigidities are high in less developed and relatively imperfect and underdeveloped markets, it should not lead to a conclusion that monetary policy is more effective under these conditions. of course, in india recent events in equity markets are not easily explicable and so we can appreciate the comment that equity markets have a mind of their own. as a group, the central bankers could take some credit for little explicit indexation in recent periods. however, the indian conditions on indexations are worth noting. the indexation is available only to workforce in the organised sector, which accounts for less than ten per cent of the total workforce, and within that, mainly to those in the public sector. having secured the principle of indexation, it is not given up by the organised work force, whatever be the level of inflation. no doubt, at the margin or incrementally, there could be less pressure for indexation, but

existing privileges are not easy to be eliminated. on the policy actions, under relatively more stable economic environment, the need, the extent and the duration of the policy interventions becomes less and less. central banks are now taking baby steps – sometimes more frequent steps and at other times after a long gap, and in both directions – to respond to, what appear to be, ripples rather than huge waves in the sea of economic activity. for instance, what is considered as a ‘ neutral rate ’ of interest in the present period appears to be much lower compared to several years before. the issue of significance here is whether the neutral rate in respect of emerging market economies, which has been coming down in tandem with global rates, will tend to be distinctly higher than in developed economies. if so, how much higher would be appropriate? thank you.