the governor, showed extraordinary competence and leadership in insulating india from the impact of the asian crisis in the mid - 1990s. dr. reddy had the courage of conviction to remove the metaphoric punch bowl before the party got wild. 18. yet the global financial crisis was so virulent that it affected virtually every country in the world. did the reserve bank learn from the sagacity of dr. jalan and the wisdom of dr. reddy to manage the current crisis? governor - designate rajan, who will take over from me early next month, is here in the audience. the challenge for you, governor rajan, will be how you will use your formidable intellect, scholarship and global experience to shape the reserve bank as a knowledge institution that will set standards for how an emerging economy central bank should manage macroeconomic policy in a globalizing world. i am aware this is history in the future, but history that will nevertheless be historic. bis central bankers ’ speeches keep your ear to the ground 19. when i was appointed governor of the reserve bank in 2008, i went to call on the prime minister before i took charge. a man of few words as we all know, he told me one thing that stuck in my mind : “ subbarao, you are moving from long experience in the ias into the reserve bank. in the reserve bank, one runs the risk of losing touch with the real world. with your mind space fully taken up by issues like interest rates, liquidity traps and monetary policy transmission, it is easy to forget that monetary policy is also about reducing hunger and malnutrition, putting children in school, creating jobs, building roads and bridges and increasing the productivity of our farms and firms. keep your ear to the ground. ” 20. in the five years that i have been at the reserve bank, i had followed this wise counsel to the best of my ability. i believe that the reserve bank is more conscious today than before that the policies it makes and implements have a meaning if, and only if, they make a positive difference to the real world. admittedly, the reserve bank is still on a steep learning curve in this regard. how will the reserve bank traverse this learning curve? that will determine not only the history of the reserve bank in the years ahead but also, in some ways, the history of india. thanks 21. let me now conclude. the preparation of this volume of history was guided by an advisory committee chaired by dr. bi

might judge the reserve bank on some of the current debates. please allow me the indulgence of defining some such issues. growth - inflation balance 14. the first, and possibly the most important debate, is about balancing between growth and inflation in the policy context. this is a balance that both governments and central banks struggle with. in my view, this debate has been clouded by some oversimplifications. one such oversimplification is to say that governments are for growth and central banks are for price stability. another oversimplification is to assert that there is a tension between growth and inflation, and that one necessarily has to play the trade - off between growth and inflation in policy making. 15. the reserve bank ’ s monetary policy aims at three objectives – price stability, growth and financial stability. to contend that the reserve bank is obsessed with inflation, oblivious to growth concerns, i think, is both inaccurate and unfair. the reserve bank is committed to inflation control, not because it does not care for growth, but because it does care for growth. there is any amount of evidence to show that an environment of low and stable inflation is a necessary precondition for sustainable growth. how history will evaluate the reserve bank on its balanced commitment to growth and inflation is an interesting conjecture. fiscal dominance of monetary policy 16. another big debate today, not just in india but around many countries in the world, is on fiscal dominance of monetary policy. this issue is playing out in a big way in europe today, but it is not new ; nor is it unique to europe. here in india, structural reforms piloted by dr. manmohan singh as finance minister, dr. rangarajan and dr. y. v. reddy in the reserve bank and shri montek ahluwalia as finance secretary have helped establish the autonomy of monetary policy in india, free of fiscal policy compulsions. experience over the last five years has shown that despite that autonomy, the degrees of freedom available for monetary policy management can be constrained by the government ’ s fiscal stance. what will be history ’ s verdict on how we, as an economy, managed this tension between fiscal and monetary policies? managing policy in a globalizing world 17. i am often asked about the challenges for the reserve bank of india on the way forward. looking ahead, one of the big challenges for the reserve bank will be to learn to manage both economic and regulatory policies in a globalizing world. dr. jalan, as