” after the bubble bursts. the surmise therefore was that the cost - benefit calculus of a more activist monetary stance of “ leaning against the wind ” was clearly negative. in other words, it is not the job of central bankers to remove the punch bowl no matter that the party is getting wild. 32. the crisis has dented the credibility of the greenspan orthodoxy. the emerging view post - crisis is that central banks cannot remain indifferent to asset price bubbles. however, it has thrown up a debate over what should be the role of the central bank and how that role might affect its other responsibilities, and indeed its autonomy. the debate is still fluid and there are no conclusive answers. nevertheless, it has helped in crystallizing some views to guide the way forward. let me discuss some of them. 33. as much as the pre - crisis orthodoxy about not deploying monetary policy in aid of asset price management has now lost its potency, reservations persist about its efficacy. the essence of the argument is that the typical monetary policy action of raising policy interest rate in small steps of 25 – 50 basis points will not help contain the surge in asset prices. on the other hand, monetary policy action aggressive enough to deter asset price build up will take a heavy toll on the real economy. a consensus is building around the view that the most appropriate way of addressing asset prices is through macroprudential instruments, either independently or in conjunction with monetary policy. indeed, macroprudential instruments are at the heart of the basel 3 package which was agreed upon last year. 34. macroprudential policies are neat in concept but throw up a host of problems in operation. the tools of macroprudential policy such as capital norms, countercyclical buffers and risk weights fall within the domain of regulation. but there also has to be consistency between the monetary stance and macroprudential policy. does this then mean that the central bank should also have responsibility for bank regulation? if on the other hand, the responsibilities are distributed across different agencies, what should be the platform and protocol for coordination? what should be the role of the government? 35. indeed, the post - crisis trend has been to entrust macroprudential supervision to central banks, and where central banks already have this responsibility, to define it more explicitly. while there could be some synergies in that, there are also questions about potential conflicts of interest such as when, for example, the macro

with low - cost indian labour ( satyanand and raghavendran, 2010 ). 5 destinational investment trends direction of outward fdi shows that it is getting more diversified across countries. diverting from the past trend ( i. e. pre - 1990s ) when indian companies were investing in countries where there was little technological competition, the more recent trend shows that indian overseas investment is increasingly flowing to developed economies ( table 4 ), partly reflecting growing confidence of the indian corporates and availability of overseas assets at competitive rates. trend of using spv or m & a route for investments abroad indian companies going for overseas investments have largely used either their overseas locally - incorporated subsidiaries or have set up holding companies and / or special purpose vehicles ( spvs ) in offshore financial centres or other regional financial centres. in 2005, indian companies were allowed to float spvs in international capital markets to finance acquisitions abroad facilitating the use of leveraged buy - outs. since then, spvs set up in off - shore financial centres, such as, mauritius, singapore and the netherlands, have been mainly used as conduits to mobilise funds and invest in third countries mainly keeping in view the business and legal consideration, taxation advantages and easier access to financial resources in the countries. while overseas investment in developed economies is going mainly through m & as, mode of entry into developing economies is observed to be mainly through green - field investments. one of the reasons for indian companies to adopt m & as route for foreign investment in developed countries is that markets in these economies tend to be mature and saturated and, therefore, companies prefer to gain market share through acquisitions rather than green - filed investments. a recent article published in “ the economist ” ( september 10, 2011 ) points out that big acquisitions by companies like tata were a way of reaching the required scale quickly. today, tata group companies are reportedly the biggest manufacturer and employment provider in the uk. satyanand, p. n and p. raghavendran ( 2010 ). “ outward fdi from india and its policy context ”, columbia fdi profiles issued by vale columbia center on sustainable international investment, september 22 bis central bankers ’ speeches d. funding pattern of outward fdi as far as policy regarding the funding of overseas investments is concerned, it is allowed in a number of ways. these sources mainly include ( i ) purchase of foreign exchange on - shore from an authorised dealer in india, ( ii ) capitalisation of foreign currency proceeds to be received from the