y v reddy : india – perspective for growth with stability address by dr y v reddy, governor of the reserve bank of india, at the symposium on current india at the institute for indian economic studies, waseda university, tokyo, 28 may 2007. * * * professor sakakibara, governor fukui, ambassador singh and the distinguished participants, i am honoured to be invited at the “ symposium on current india ” organised by the waseda university institute for indian economic studies. i am grateful to professor sakakibara, a globally distinguished economic statesman, for inviting me to be here. it is also a privilege to share a platform with universally respected governor fukui. there are strong complementarities in the economic endowments of india and japan. for example, these relate to capital surplus, demography, technological specialistion and raw material endowment. we know that indo - japan trade and economic relations are moving on to a new trajectory with major new initiatives in asia. several infrastructure projects in india are being considered in joint - partnership with japan. i hope that during the symposium, vital issues and areas relevant for the mutual benefit of both countries would be highlighted. keeping in view the topic of the symposium and my locus standi, i have chosen to speak on “ perspective for growth with stability ” in the context of indian economy. 1. a quarter century of growth with stability ( 1980 - 2005 ) the indian economy has been growing at an average growth rate of about 6. 0 per cent over a period of 25 years since 1980 - 81 ( india ’ s fiscal year is from 1st april to 31st march ). the important point to note is that not only the growth rate of the indian economy has been high during this period, but there has been considerable amount of stability also. a remarkable feature of india's growth experience has been its resilience to both global and domestic shocks. several hypotheses are given to explain this level of consistency in india's growth rate despite the fact that we faced several exogenous shocks like contagion effect of international financial crises, security tensions, international sanctions, poor rainfall, etc. the dominance of domestic consumption, contributing on an average to almost two - thirds of the overall demand, has helped in reducing the volatility of gdp. services sector is dominant and less volatile compared to agriculture and this phenomenon has also been imparting stability to the indian growth process. the larger share of the services sector growth is currently providing

need further scaling up along with corresponding measures to continue regulatory modernisation and strengthening. since the overall objective of maintaining price stability in the context of economic growth and financial stability will remain, the effort will be to harmonise the deregulation and liberalisation of financial markets with the domestic developments in real as well as fiscal sectors and global developments in international financial architecture. ( iii ) capital account : calibrated liberalisation drawing on the experience of the past decade and a half, india ’ s approach to capital account liberalisation can be summarised as follows : first, capital account liberalisation is treated as a process and not an event. second, it is recognised that there may be links between the current and capital accounts and hence procedures are in place to avoid capital flows in the guise of current account transactions. third, capital account liberalisation is kept in tune with other reforms. the extent and timing of capital account liberalisation is properly sequenced with other concomitant developments such as strengthening of banking, fiscal consolidation, market development and integration, trade liberalisation, and the changing domestic and external economic environments. fourth, the pace and sequencing of liberalisation is responsive to domestic developments, especially in the monetary and financial sectors, and the evolving international financial architecture. as liberalisation advances, the administrative measures are reduced and price - based measures are increased, but the freedom to change the mix and reimpose controls is demonstrably available. fifth, a hierarchy is established in the sources and types of capital flows. the priority has been to liberalise inflows relative to outflows, but all outflows associated with inflows have been totally freed. sixth, significant liberalisation on outflows on behalf of individuals, corporates, and mutual funds is underway consistent with significant strengthening of the external sector. finally, while pursuing the medium - term objective of fuller capital account liberalisation, currently the need for pursuing controls of a prudential nature particularly on financial intermediaries and contextually, more active management of capital account is duly recognised. going forward, india plans to continue its carefully calibrated gradualist approach as it enables harmonisation with reforms in other sectors of the economy. the pace of further liberalisation will, however, depend on domestic factors, especially further progress in reforms in real sector, fiscal consolidation, and the evolving financial architecture ; and international developments in addition to achievement of certain “ concomitants ”, indicated in the latest tarapore committee on