. so, the emphasis of post - crisis regulatory reforms on making the financial system stable is understandable. but a relevant question is, where do we strike the balance between growth and stability? in other words, how much growth are we willing to sacrifice in order to buy insurance against financial instability? for illustrative purposes, let us take the basel iii package. a bis study estimates that a one percentage point increase in the target ratio of tangible common equity ( tce ) to riskweighted assets ( rwa ) phased in over a nine year period reduces output by close to 0. 2 per cent. it is argued though that as the financial system makes the required adjustment, these costs will dissipate and then reverse after the adjustment period, and the growth path will revert to its original trajectory. a bcbs study estimates that there will be net positive benefits out of basel iii because of the reduced probability of a crisis and reduced volatility in output in response to a shock. an iif study, however, estimates a higher sacrifice ratio – that the g3 ( us, euro area and japan ) will lose 0. 3 percentage points from their annual growth rates over the full ten - year period 2011 – 2020. what are the implications of these numbers relating to growth sacrifice for emes? let me take the example of india. admittedly, the capital to risk weighted asset ratio ( crar ) of our banks, at the aggregate level, is above the basel iii requirement although a few individual banks may fall short and have to raise capital. but capital adequacy today does not necessarily mean capital adequacy going forward. as the economy grows, so too will the credit demand requiring banks to expand their balance sheets, and in order to be able to do so, they will have to augment their capital. in a structurally transforming economy with rapid upward mobility, credit demand will expand faster than gdp for several reasons. first, india will shift increasingly from services to manufactures whose credit intensity is higher per unit of gdp. second, we need to at least double our investment in infrastructure which will place enormous demands on credit. finally, financial inclusion, which both the government and the reserve bank are driving, will bring millions of low income households into the formal financial system with almost all of them needing credit. what all this means is that we are going to have to impose higher capital bis central bankers ’ speeches requirements on banks as per basel iii at a time when credit demand

context of cpi headline inflation having averaged 6. 3 per cent in the fourth quarter of 2021 - 22 and projected to average 7. 5 per cent in the first quarter of 2022 - 23 and 7. 4 per cent in the second quarter. inflation is, however, forecast to edge down to 6. 2 per cent in the third quarter and to 5. 8 per cent in the fourth quarter. the rbi act mandates that in the case of the inflation target not being met for three consecutive quarters, the rbi shall set out in a report to the central government ( a ) the reasons for failure to achieve the inflation target ; ( b ) remedial actions proposed to be taken ; and ( c ) an estimate of the time - period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions. what constitutes failure has been notified by the central government in the official gazette of india as ( a ) average inflation being more than the upper tolerance level of the inflation target for any three consecutive quarters ; or ( b ) average inflation being less than the lower tolerance level of the inflation target for any three consecutive quarters. let me speak to these issues squarely. monetary policy is essentially a contract between the sovereign - through its delegated authority, the central bank – and the people. it is an assurance by the sovereign that it will give to the people a money they can trust, a money that does not lose value or purchasing power, and in fact, stores value into the future. therefore, it is indeed appropriate that monetary policy is accountable, without any escape clauses. in india, this accountability is provided for with sufficient flexibility in the form of an inflation target defined in averages rather than as a point ; achievement of the target over a period of time rather than continuously ; a reasonably wide tolerance band around the target to accommodate measurement issues, forecast errors and supply shocks ; and failure being defined as three consecutive quarters of deviation of inflation from the tolerance band, rather than every deviation from the target. let me now turn to the specific aspects of the accountability conditions. research within the rbi, published in the report on currency and finance 2020 - 21, and outside it clearly demonstrates that growth is unambiguously impaired when inflation crosses 6 per cent. hence, breaching of the appropriate upper tolerance limit of 6 per cent for india ’ s inflation target should trigger accountability if monetary policy has to remain credible. currently, we live in extraordinary times. with inflation at multi - decada