- base the recovery. while there are signs of recovery in investment, it is recognized by many that further progress would be helpful to foster better integration of labor, health care, product, pension and financial market reforms. it is recognized that structural reforms by their nature are complex and their impact at best could be only over the medium term. iii. we are already witnessing that the japanese economy is on the way to recovery ; the current account surplus has begun to narrow against the background of strengthening domestic demand, which is critical. thus, the japanese economy is expected to continue to take some concrete measures to strengthen its financial system, restructure the corporate sector, and reduce large fiscal imbalances. iv. as for the emerging economies, especially in asia, some experts suggest that the growth strategy could be reoriented towards domestic demand to offset possible declines in exports to the us. there are already some signs of strengthening in domestic demand in this region. it is felt that improvement in the investment climate to support higher private investment in the emerging economies is important. it is argued by some that the exchange rate policy may require some attention of the policy makers in the region. however, some others consider that exchange rate adjustments may not serve the interests of output and employment in these countries, while effectiveness of such exchange rate adjustments by themselves in unwinding the imbalances is not conclusive. v. the oil exporting countries have recorded large trade surpluses, the investment of which in the domestic market and abroad would help rebalancing global demand. it is suggested that these countries could boost expenditures to some extent in areas where social returns are high like education, health, infrastructure and social security. it is felt that structural policies to strengthen legal and economic infrastructure in these countries may help promoting investment. however, it is also argued that in many oil exporting countries scope for domestic absorption is limited in the short run. ii. india ’ s perspective on global imbalances ( a ) india ’ s role in global imbalances since independence, india has moved from a moderate growth path of the first three decades ( 1950 to 1980 ) to a higher growth trajectory since the 1980s. over the last two and a half decades, india has emerged as one of the fastest growing economies of the world, averaging about 6 per cent growth rate per annum and the ranking of the country in terms of size of the economy, especially in purchasing power parity ( ppp ) terms, has improved. in the last

asian crisis owing to the reforms undertaken in previous years and proactive and timely policy measures initiated by the reserve bank to minimise the contagion effect. monetary tightening coupled with flexible exchange rate and steps to bolster reserves through issuance of resurgent india bonds ( ribs ) helped in stabilizing the bop. the bop came under some stress again in the first half of 2000 – 01 due to a sharp rise in oil prices and increase in interest rates in advanced countries. at the same time, india ’ s software exports got a boost following the demands to address the y2k challenges. this also encouraged migration of indian software engineers to the advanced countries. as a result, the surplus in the services exports and remittance account of the bop increased sharply which more than offset the deficit in the trade account. software exports rose from 0. 9 per cent of gdp in 1999 – 2000 to a peak of 3. 8 per cent of gdp by 2008 – 09. private remittances also rose from 2. 7 per cent of gdp to 3. 8 per cent during this period. thus, in the 2000s software exports and private remittances emerged as two main financing items for the current account mitigating to a large extent the merchandise trade deficit ( tables 2 & 3 ). owing to a combination of factors, in fact, the current account recorded a surplus during 2001 – 04. subsequently, as international oil prices started rising and domestic growth picked up, deficit in current account re - emerged during 2004 – 05 to 2007 – 08 albeit remained range bound. after a period of stability, india ’ s bop came under stress in 2008 – 09 reflecting the impact of global financial crisis. as capital inflows plummeted, india had to draw down its foreign currency assets by us $ 20 billion during 2008 – 09. stress since the collapse of lehman brothers largely emanated from decline in india ’ s merchandise exports and deceleration in growth in services exports. though there was some improvement during 2010 – 11 on the bis central bankers ’ speeches back of a strong pick - up in exports mainly led by diversification of trade in terms of composition as well as direction, it proved to be short - lived. bop again came under stress during 2011 – 12 as slowdown in advanced economies spilled over to emerging and developing economies ( edes ), and there was sharp increase in oil and gold imports. let me now turn to the financing aspects of the current account. india ’ s