, this remains relevant even today, in fact more today, post crisis. too much of leverage, too much of liquidity, too much of complexity and too much of greed – they all have led to the crisis. it is now being argued that too much of finance is also not conducive to growth. recent studies 8 suggest that while at low levels a larger financial system leads to higher productivity, beyond a point, more banking and more credit result in lower growth. further, it is also argued that fast growing financial sector can be detrimental to the aggregate productivity growth. moderation in approach, therefore, is an important lesson. takeaway 2 : models are not absolute in the run up to the crisis, there was an excessive reliance and almost a blind faith that models convey absolute truths. entire risk management systems were built around this belief. post crisis, participants have woken up to the harsh reality that models do not fully reflect the realities of life and excessive reliance on quantitative models is fraught with risk. exact sciences such as physics are governed by nature ’ s laws that are immutable and lead to definite and predictable results. finance on the other hand, is governed by capricious human behavior and biases which cannot be easily modeled. to an argument that models with all their limitations are better than not having any, nassim taleb has said “ you are worse of relying on misleading information than on not having any information at all. if you give a pilot an altimeter that is sometimes defective he will crash the plane. give him nothing and he will look out the window ” knowing the shortcomings of the models is, therefore, extremely important for their judicious usage. takeaway 3 : finance should serve the real sector and not the converse while it is agreed that financial system furthers the economic development by enabling efficient allocation of capital and risk, the ultimate objective of finance, which is the furthering of economic development should not be lost sight of. in the period prior to crisis, the financial activity grew so much that the umbilical cord between financial and real sectors was severed and the finance started to exist for its own sake. the dangers of such a scenario have been quite emphatically conveyed by the crisis. with these thoughts, i conclude my address. i thank you all for your patient hearing and wish you all the best in your future endeavors. references : acharya, shankar ( 2012 ) “ india - after the global crisis ” cecc

, another crisis in the nature of sovereign debt crisis surfaced. the growing debts of many european sovereigns caused sustainability concerns forcing investors to withdraw from these markets which led to significant escalation of their cds spreads. the crisis which emerged in late 2009 has engulfed the entire eurozone by end 2011. while only greek bonds had cds spreads higher than 200 bps in april 2010, by jan 2012, bonds of all countries except germany, finland and the netherlands had cds spreads higher than 200 bps. in fact, bonds of piigs countries ( portugal, italy, ireland, greece and spain ) had cds spreads even higher than 400 bps. the combination of sluggish activity, bailouts and fiscal stimulus measures have led to ballooning of fiscal deficits and public debt / gdp ratios in major advanced economies and have raised concerns over fiscal sustainability. these concerns are most visible in euro area countries, which were plagued by various combinations of problems such as over - large banking sector that had become exposed to a housing boom and bust, an uncompetitive economy signaled by repeated current account deficits, and a bloated state sector with high private - sector unemployment 6. for example, fiscal deficit / gdp ratios of advanced economies jumped from a near balance position ( deficit of 0. 6 per cent ) in 2007 to 9. 0 per cent in 2009, with that of the us jumping from 2. 7 per cent to 13. 0 per cent over the same period. fiscal deficits of emerging economies also rose, albeit relatively modestly, from a surplus of 0. 1 per cent in 2007 to a deficit 4. 8 per cent in 2009. the public debt / gdp ratio for advanced economies increased from 73. 4 per cent in 2007 to 93. 7 per cent in 2009 and further to 103. 5 per cent in 2011. the ratios for emerging market economies ( emes ) over the same years were almost unchanged at 35. 9 per cent, 36. 7 per cent and 37. 8 per cent. the sovereign debt crisis, in a way has completed the circle – during the global crisis 2007 the impact spread from banking system to sovereigns while in the current crisis, the impact is in the reverse direction, from sovereigns to banks. what makes the present crisis more disturbing is, in the global crisis, when banks were under stress there was a backstop in the nature of sovereigns, but now sovereigns themselves are on the verge of default leaving everyone wonder as to what could