financing fiscal deficit. the auction based issuance process is transparent with publication of auction calendars well in advance enabling the market participants to plan their investments. the large supply of securities, due to enhanced borrowings, has enabled creation of benchmark securities with sufficient outstanding stock and issuances across the yield curve. the issuances across the risk - free yield curve in turn have provided benchmarks for valuation of other bonds / financial assets. despite economic recovery in 2010 – 11 and resumption of fiscal consolidation path, the market borrowing of the government has remained at elevated levels in india. the union budget of india 2011 – 12 estimated gross fiscal deficit ( gfd ) at 4128. 17 billion and budgeted gross market borrowings of 4170. 00 billion. the market borrowings, however, through dated securities for the current year has been increased by about 930. 00 billion due to shortfall in other financing items, primarily due to moderation in the growth rate of the economy and increased expenditure. besides inflationary implications, such large overhangs of debt and increasing annual borrowings have impeded the growth of flow of resources to the private sector by way of both loans and bonds. more importantly, lack of fiscal flexibility has not facilitated creation of limited number of benchmarks and active consolidation of illiquid securities. this fragmented g - sec market has neither been beneficial to the issuer nor the investors. in spite of some passive consolidation of government securities undertaken by the reserve bank of india, the market remains fragmented with many stocks with relatively small size. nearly fifty percent of the outstanding stocks has volume less than 200 billion. there is merit in pursuing active consolidation with focus on buy - backs and switches to build volumes and improve liquidity. reserve bank is in consultation with the government to achieve some degree of consolidation in g - sec in the near future. reserve bank has recently constituted a working group ( chairman : shri. r gandhi, executive director, reserve bank of india ) to examine ways to improve liquidity in government securities and interest rate derivatives market as well as suggest measures for active consolidation of the securities. corporates in many developed markets – predominantly in the us and increasingly in other jurisdictions – have a marked preference to tap the bond market rather than to seek bank loans for meeting their external finance requirements. in india, however, companies continue to depend on the banking system for funds because of ease of availing bank finance, absence of credit risk mitigation mechanisms and a host of

g padmanabhan : goa to goa – changed contours of the indian forex markets – new realities and priorities inaugural address by mr g padmanabhan, executive director of the reserve bank of india, at the 23rd annual forex assembly of the forex association of india, goa, 18 august 2012. * * * assistance provided by s / shri. g mahalingam and h. s. mohanty gratefully acknowledged. 1. it is indeed an honour to once again address the top professionals in the indian forex market. it is exactly 15 years since dr y v reddy, the then rbi deputy governor, heralded the beginning of a true forex market in india in this city through what has become famous as the " goa speech ". clearly the attempt of dr reddy that day, and i was present in the front row of the audience, was to drive home some rationale and sanity into the participating audience. the market took the cue and rest as they say is history. today, we are back to the same position but exactly on the opposite side. but what is needed to calm the market is the same – may be more sophisticated – levels of sanity and rationality. let me attempt to set out some issues and priorities in this endeavour. 2. an old adage, purportedly an old chinese proverb and curse, that has been fashionable in the post global financial crisis discourse, goes : “ may you live in interesting times ”. to see it as a curse is a bit of an irony ; after all, interesting times are what one hopes for and looks forward to. yet, on reflection, it is easy to see what the chinese sages would have meant. after all, the only thing that is interesting is uncertainty, and therefore, interesting times may be enjoyable for the bystander ; but for those who are in the thick of it, those who are to take various decisions and whose livelihood depended on it, it surely is a challenge, to say the least. but the question that i am going to examine today is different. do economic agents, who have a significant exposure to forex risk in their balance sheet deem this phase of uncertainty and volatility as a challenge or do they consider this as a royal pathway to boom? i will try finding some answers to this question but with a warning – the word “ boom ” is not too different from the word “ doom ” both in terms of intonation and reality. in