k c chakrabarty : infrastructure finance – experiences and the road ahead address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the 13th financial services convention of bombay management association, mumbai, 5 february 2010. * * * respected dr rangarajan, chairman of the economic advisory council of pm, padma vibhushan dr y v reddy, shri g pinto, executive director, bma, distinguished guests and representatives from the print and electronic media. 1. getting an award is always an exciting and motivating event particularly when you are getting it in the presence of the doyens or giants of the sector like dr rangarajan and padma vibhushan dr y v reddy. i am extremely grateful to bombay management association ( bma ) for honouring me with the bma finance man of the year award and would like to sincerely thank them. i accept this award with full humility and understanding that the award belongs to all the employees and customers of the institutions that i have served during the last 30 years. in fact, it is an award to all stakeholders of those institutions. it is indeed an honour and privilege for me to have been presented this award by dr y v reddy, our ex - governor, who has himself been awarded the finance man of the decade award. it is a matter of great jubilation that, in the past, eminent personalities like shri a. k. purwar, shri m. damodaran, dr y. v. reddy, dr bimal jalan, etc. have been conferred this award and it is indeed a matter of great pride for me that i have been included in this pantheon of awardees. i congratulate the bma for organising the 13th financial services convention on the theme “ infrastructure finance : experiences and the road ahead ”. i would now like to take this opportunity and share my thoughts on the theme of the convention before the distinguished dignitaries. introduction 2. as you know, the indian economy has enormous growth potential, a fact that is equally acknowledged by the analysts in - house as well as abroad. india can be one of the economic powerhouses in the current millennium following the success of china this decade. the economic dominance of india along with china looks all the more likely in view of the expected change in the epicentre of growth to emerging asia after the crisis. the 8. 8 per cent average growth clocked by the indian economy during 2003 – 08

sharing and supported exuberance in the financial sector. “ shadow banking ” ( the english insurance companies and international investors ) played a pivotal role. as liquidity stress morphed into solvency problems, the bubble burst with a dramatic international stock market crash. you can see how the mechanics of this crisis do not differ much from those of the recent great financial crisis, and all other crises traced through history by charles kindleberger. 3 p. hakkarainen ( 2015 ) finance cycles and macroprudential tools - the case of finland within the euro area. speech at the seventh high - level policy dialogue of the eurosystem and latin american central banks, madrid, 11 november. r. frehen, w. goetzmann and g. rouwenhorst ( 2013 ) new evidence on the first financial bubble. journal of financial economics. vol. 108 ( 3 ), pp. 585 – 607. bis central bankers ’ speeches my second point is that there is a consensus that macroprudential policy is an essential toolkit but its effects and transmission channels are still not fully understood. since the 1930s, policymakers have used prudential means to enhance system - wide financial stability, with a view to limiting macroeconomic costs from financial distress. some measures taken in the 1930s, 1950s and 1960s to support the domestic financial system and to influence the supply of credit have been viewed as macroprudential tools. 4 still, when andrew crockett pleaded for a macro perspective on prudential policy in 2000, the idea was controversial. 5 it took the great financial crisis to forge a consensus on the importance of macroprudential policy. as pentti put it, “ macroprudential policy is needed in addition to other economic policies. it is very important that authorities have also macroprudential instruments available. now, after the great financial crisis, we have instruments and framework in place. ” 6 but in his usual sharpness pentti also highlighted the challenges to using macroprudential tools : “ the effects of the said instruments are uncertain and second, processes for their usage are unnecessarily complicated. these points are intertwined. ” 7 my third point – and here i would like to elaborate a bit – is that we should not look at macroprudential policy and its effectiveness in isolation. as pentti argued in a speech last year, it is important to coordinate macroprudential policy and monetary policy