$ 26. 4 at end - march 1997. the data that i have just presented will show that our fundamentals are strong, making us less vulnerable to contagion, and this is clear from our performance in 1997 - 98 also, when the crisis struck east asia. during 1997 - 98, real gdp growth has been estimated at 5. 1 per cent, a decline from the previous year ’ s growth of 7. 5 per cent, mainly attributable to a significant decline in agricultural output. the rate of inflation as measured by the wholesale price index declined in 1997 - 98 to 5. 3 per cent on a point - to - point basis. in 1997 - 98, the current account deficit continued to be low at 1. 7 per cent of gdp and there was accretion to foreign exchange reserves to the tune of us $ 3 billion. the reason as to why we escaped the contagion can be analysed in terms of the policies that we have been pursuing in areas where serious concern has been expressed in the context of the asian crisis. investment as a percentage of gdp has been reasonably steady in the recent past at around 27 per cent on average, and about 95 per cent of this was financed by domestic savings. in managing our external account, we ensure a sustainable current account deficit, strictly control reliance on short - term external debt, limit access to external debt, and emphasise productive use of such debt. we do encourage foreign direct investment and portfolio investments through foreign institutional investors as the main sources of non - debt - creating capital inflows. also, the exchange rate is market determined. the rbi closely monitors it, and when warranted makes purchases and sales of foreign currency to ensure orderly conditions in forex markets. we undertook, early in the reform period, financial sector reforms - especially banking reform, which included strengthening the regulatory framework, imposing prudential norms and reducing non - performing assets. we discourage banks ’ investments in real estate and stock markets. corporates ’ exposure to debt, especially external debt, is within reasonable limits. as compared with other central banks, there is widely recognised transparency in operations of the reserve bank of india. there is, therefore, reason to believe that it is not just chance but sound macroeconomic management which saved us from the south - east asian contagion. it is nonetheless necessary for us to learn from the experience of the asian crisis. policy frame the broad approach to reform in the external sector after the gulf crisis

this can in turn leave countries vulnerable to sudden stops once optimism fades due to local or global shocks. indeed financial cycles tend to have a global component, and hence the discussion about financial globalisation has evolved into one about the “ global financial cycle ”, which is driven by us monetary policy. the assumption is that non - us central banks have lost their ability to influence domestic long - term interest rates, even in the presence of flexible exchange rates, due to the existence of “ us - driven ” global financial cycles. 6 as a result, the classic trilemma 7 may have morphed into a dilemma between financial openness and monetary policy autonomy. in addition to risks related to unsustainable lending booms, which can be fueled by capital flows, policy makers and academics recently also stressed risks stemming from disruptive capital outflows, which can endanger financial stability, for example if large amounts of bank deposits 1 / 4 bis central bankers'speeches are pulled out of a country. in the context of this debate on financial integration, academic papers on the welfare optimality of taxation of international capital flows have also thrived since the crisis. 8 moreover, the standard international policy consensus on financial globalization has been shattered by the crisis. for example, the imf adopted in 2012 an institutional view that said temporary and targeted capital flow management measures can be useful in certain circumstances, i. e. when the room for manoeuvre for macroeconomic adjustment is limited. 9 the fund is now reviewing this institutional view. it is expected that the effectiveness of capital flow management measures, which have been recently used in emerging and some advanced economies, will be assessed in a balanced way, taking into account all intended and unintended effects, which such measures may generate. in parallel, the oecd is reviewing its code of liberalization of capital movements. with the review, the oecd aims to facilitate collective action by boosting transparency and shared understandings on good practices related to managing and liberalising capital flows. a particular area of interest is the treatment of capital flow measures that are used as macro - prudential measures. for policy makers, this is important since at times there may be tradeoffs between financial integration and financial stability. ii. effective financial risk sharing rests on the soundness of institutions and policy rules as part of this policy discussion, i would like to underline that openness to international capital flows should continue to help diversify country - specific shocks. this would