they are motivated by the need to impose some limits on the risks of global exposure and not by day - to - day considerations of exchange rate volatility. consequently, the rupee moves in response to daily supply and demand patterns against the backdrop of these strategic restrictions. in turn, these restrictions can be lowered in response to strategic considerations, such as the increasing demand for foreign funds for infrastructure investment, which has been done over the past year. but, to return to the issue of resilience in the face of the crisis of 2008, it could be argued that the preference ordering reflected in the capital account management framework helped to minimise the severity of the impact on the domestic economy. policy challenges let me repeat the basic argument i am advancing. reforms were a critical contributor to the acceleration of growth in the indian economy. however, the reform strategy, as productive as it was, brought with it some risks. recognition of these risks and the response to them in terms of some boundaries helped the economy to be resilient in the face of a very severe shock. the essential message from this argument is that the combination of growth and resilience comes from a reform process that balances expansion of opportunities with mitigation of risks – efficiency with stability. with this in mind, let me return to the organizing framework that i began the lecture with. the recent past has been categorized into two of the boxes. let us look at the future in terms of bis central bankers ’ speeches the other two. of these, the top left - hand box appears at this point in time to be irrelevant. it is difficult to foresee a situation for some time to come in which the indian economy will be beset by problems while the rest of the world is doing relatively well. that leaves the bottom right - hand box, in which the indian economy is experiencing favourable conditions, while the rest of the world is not. the unfavourable global conditions postulated in this scenario are certainly a realistic assumption. the question then is : how do we ensure that the domestic economy moves into the favourable zone? this is essentially where the policy challenge lies. drawing on the reform - growth - resilience triangle, what are the policy priorities, which will help the economy to sustain growth while keeping risks in check? this opens up a wide canvas, but i will confine myself to issues i have covered in this lecture, viewing them from the growth - resilience perspective. first, let me return to

raghuram rajan : policy and evidence inaugural address by dr raghuram rajan, governor of the reserve bank of india, at the 10th statistics day conference 2016, reserve bank of india, mumbai, 26 july 2016. * * * good morning. it is a pleasure to welcome learned statisticians and economists from across the world to this statistics day celebration at the rbi. i am sure you will spend the day discussing advances in the fields of economics and statistics. these discussions will be very valuable. we certainly need to improve the quality and timeliness of our statistics, and big data can be very helpful. what i want to talk about this morning is, however, not the quality or timeliness of the data but the use of evidence in the policy dialogue. some may believe that all it takes to convince the body politic of the necessity to choose one policy over another is to present the evidence, complete with careful, well identified tests. confronted with the evidence, the advocates of misguided policies will simply bow to the superiority of the other side ’ s arguments and withdraw gracefully. unfortunately, as many of you who advise policymakers know, this is not how the real world works. let me make the point using a current debate in india. there is a belief in some quarters that the reserve bank has hurt economic growth by keeping interest rates and borrowing costs too high, that those high rates have reduced credit and spending but had little effect on inflation. inflation has come down only because of good luck stemming from low energy prices. furthermore, the rbi has compounded the growth slowdown by urging banks to clean up their balance sheets. the rbi, of course, stands by its policies. nevertheless, this debate is very important because it could shape policy directions in india over the medium term. now what does the evidence say? i am going to offer some simple charts only, not detailed econometric tests, but they should indicate the rationale for our actions. specifically, monetary policy has not been too tight. instead, i will argue that the slowdown in credit growth has been largely because of stress in the public sector banks, stemming from past mistakes in lending. this will not be fixed just by a cut in policy rates. instead, what is required is a clean - up of the balance sheets of public sector banks, which is underway and needs to be taken to its logical conclusion. i will then speculate why economic evidence finds it so hard to prevail in the