became cumulative and eventually emerged as a significant source of monetary financing of the government expenditure. the relationship between the reserve bank of india and the government took a significant turn in september 1994 when a supplemental agreement was entered into with the government which limited, initially, the net issuance of ad hoc treasury bills. this initiative culminated in the abolition of the ad hoc treasury bills in april 1997 and the system was replaced by a provision for extending limited ways and means advances. the phasing out of automatic monetisation of budget deficit has, thus, strengthened the monetary policy framework, imparting flexibility and operational autonomy. with the enactment of the fiscal responsibility and budget management act in 2003, the reserve bank has withdrawn from participating in the primary issues of central government securities with effect from april 2006. there could be exceptions only on the grounds of national security or national calamity or such other exceptional circumstances. the recent legislative amendments enable a flexible use of the crr for monetary management, without being constrained by a statutory floor or ceiling on the level of the crr. the amendments also enable the lowering of the statutory liquidity ratio ( slr ) to the levels below the previous statutory minimum of 25 per cent of net demand and time liabilities of banks – which would further improve the scope for flexible liquidity management. ( e ) strengthening the transmission channels in a market - oriented economy, policy signals are transmitted through an integrated and efficient money, government securities and foreign exchange markets combined with a robust payments and settlement system. the reserve bank has therefore, been engaged in developing, widening and deepening of various markets and institutions. the medium - term framework is to keep developing the financial markets, preserving the integrity of financial markets and thereby, improving the transmission of monetary policy impulses. in the area of money market, several measures were taken to refine the overnight and the notice money market, the term money, commercial paper and certificate of deposit markets, besides the repo market. a screen - based, negotiated, quote - driven system for dealings in the call / notice and term - money markets ( nds - call ) has also been recently launched. well functioning market for government securities is necessary, both for effective public debt management and monetary management, while serving the broader interest of development of financial markets in general, and debt markets, in particular. accordingly, a number of initiatives have been taken over the years to develop both the primary and secondary markets for government securities. the need for further development assumed greater significance

the governor, showed extraordinary competence and leadership in insulating india from the impact of the asian crisis in the mid - 1990s. dr. reddy had the courage of conviction to remove the metaphoric punch bowl before the party got wild. 18. yet the global financial crisis was so virulent that it affected virtually every country in the world. did the reserve bank learn from the sagacity of dr. jalan and the wisdom of dr. reddy to manage the current crisis? governor - designate rajan, who will take over from me early next month, is here in the audience. the challenge for you, governor rajan, will be how you will use your formidable intellect, scholarship and global experience to shape the reserve bank as a knowledge institution that will set standards for how an emerging economy central bank should manage macroeconomic policy in a globalizing world. i am aware this is history in the future, but history that will nevertheless be historic. bis central bankers ’ speeches keep your ear to the ground 19. when i was appointed governor of the reserve bank in 2008, i went to call on the prime minister before i took charge. a man of few words as we all know, he told me one thing that stuck in my mind : “ subbarao, you are moving from long experience in the ias into the reserve bank. in the reserve bank, one runs the risk of losing touch with the real world. with your mind space fully taken up by issues like interest rates, liquidity traps and monetary policy transmission, it is easy to forget that monetary policy is also about reducing hunger and malnutrition, putting children in school, creating jobs, building roads and bridges and increasing the productivity of our farms and firms. keep your ear to the ground. ” 20. in the five years that i have been at the reserve bank, i had followed this wise counsel to the best of my ability. i believe that the reserve bank is more conscious today than before that the policies it makes and implements have a meaning if, and only if, they make a positive difference to the real world. admittedly, the reserve bank is still on a steep learning curve in this regard. how will the reserve bank traverse this learning curve? that will determine not only the history of the reserve bank in the years ahead but also, in some ways, the history of india. thanks 21. let me now conclude. the preparation of this volume of history was guided by an advisory committee chaired by dr. bi