crisis. india ’ s international economic relations with advanced countries came under stress during the indo - pak conflict. withdrawal of foreign aid by countries like the us and conditional resumption of aid by the aid india consortium led to contraction in capital inflows. given the low level of foreign exchange reserves and burgeoning trade deficit, india had no option other than to devalue. rupee was devalued by 36. 5 per cent in june 1966. 1 though india ’ s export basket was limited, the sharp devaluation clearly increased the competitiveness of india ’ s exports. concurrently, india had to undertake a number of trade liberalising measures. even though the net impact of devaluation was a contentious issue among the leading economists, 2 data show that exports growth, though modest, outpaced imports growth ( chart 1 ). official rate increased from rs. 4. 76 per us dollar to rs. 7. 50 per us dollar. for example, bhagwati and srinivasan ( 1975 ) argued that the effective devaluation was more for imports than the exports. “ foreign trade regimes and economic development : india ”, national bureau of economic research, new york. bis central bankers ’ speeches in fact, the current account turned into a surplus in 1973 – 74 as not only the exports growth was significant but invisible3 receipts also showed a sharp turnaround from deficit to surplus mainly on account of official transfers which largely represented grants under the agreement of february 1974 with the us government on the disposition of pl 480 and other rupee funds. since surplus in current account balance ( cab ) was used for repaying rupee loans under the same agreement with the us, accretion to reserves was only marginal. surplus in india ’ s cab was, however, short - lived as the first oil shock occurred by october 1973. sharp rise in international oil prices was evident in higher imports growth in 1973 – 74 and 1974 – 75. the share of crude oil in india ’ s import bill rose from 11 per cent in 1972 – 73 to 26 per cent by 1974 – 75. as exports improved, particularly to oil producing middle - east countries, bop recovered quickly from the first oil shock. by this time, the indian rupee, which was linked to a multi - currency basket with pound sterling as intervention currency, depreciated against the us dollar ( chart 2 ). comprises services, transfers and income. bis central bankers ’ speeches deprecia

you send ₹20, 000 as requested into an untraceable account. my office then gets repeated phone calls from you asking what happened when the ₹50 lakhs does not show up. the truth is that we are all gullible – no amount of warnings that the reserve bank does not ask you for your money helps. the central theorem of financial literacy is “ there is no such thing as a free lunch ”. in the context of financial investments, it can be restated as “ there is no return without risk ”. we need to imprint these two statements in everyone ’ s head and we intend to roll out campaigns to do so. conclusion i have described some of the ways we will position the financial system towards sustainable growth on a base of macroeconomic stability. of course, finance can only facilitate growth, the true engine of growth is the real economy, where the government ’ s structural reforms are facilitating the way. throughout its 81 year history, the rbi ’ s staff has always risen to the challenges posed by a dynamic, growing economy. we have never hesitated to say no when the stability of the system is at stake. at the same time, we have liberalized when it is needed. following the traditions set by our past leaders like shri c. d. deshmukh, we will help take india forward. thank you very much again for inviting me to give this talk. bis central bankers ’ speeches