was managed without any reschedulement of any contractual obligation, but with a recourse to stabilization measures and initiation of structural reforms. the current account convertibility in 1994 led to liberalization of gold imports and large capital inflows up to 1996. in 1997, the timely efforts to depreciate the currency warded off a possible crisis due to persistence of a relatively over valued rupee in the forex markets. this also enabled the implementation of a package of monetary and other prompt actions in resisting contagion effects of asian crisis in late 1997 and early 1998. the imposition of sanctions by u. s. government and others consequent upon nuclear tests required replacement of normal debt flows with a type of extra ordinary financing. there was also an occasion, as in may - august 2000 where inexplicable changes in expectations put pressure on the currency warranting yet another package to counter the market sentiment. in contrast the events of september 11, 2001 needed measures to reassure the markets with timely liquidity and stability in monetary measures. the reasonable success in managing these uncertainties while adding to forex reserves with marginal addition to total external debt but maintaining both reasonable overall macro - economic stability and pace of reform in financial sector has some tentative lessons to offer. first, stable and appropriate policies governing overall management of the external sector are important. as part of the reform process, a policy framework was developed to gradually liberalise the external sector, move towards total convertibility on current account, encourage non debt credit inflows while containing all external debt especially short term debt in capital account and make the exchange rate largely market determined. the policy reform in the external sector, accompanied by other changes was guided by the report of high level committee on balance of payments, april 1993 ( chairman dr. c. rangarajan ). second, the impression that a closed economy is less vulnerable to crisis is not borne out by facts. india was a closed economy on the eve of the gulf crisis but the impact was severe. though it is now a relatively more open economy, it could without serious disruptions withstand several uncertainties. third, as evident from experience, if the fundamentals are weak, the economy is more vulnerable in the face of uncertainties. fourth, in all instances of serious uncertainties, the existence and manifestation of harmonious relations between the government and the central bank become critical and appropriate coordination is extremely useful. fifth, while it is difficult to anticipate or assess the

between what a financial sector can contribute and what fiscal action can contribute to matters relating to poverty alleviation. in the interest of efficiency and stability of financial sector, intermediation may have to be progressively multi institutional rather than wholly bank - centred. social obligations may have to be distributed equitably among banks and other intermediaries but that would be difficult to achieve in the context of emerging capital markets and relatively open economy. in such a situation, banks which are special and backbone of payment systems, may face problems if they are subject to disproportionate burdens. hence, mechanisms have to be found to reconcile these dilemmas. furthermore, monetary policy is increasingly focused on efficient discharge of its objective including price stability, and this no doubt would help poverty alleviation, albeit indirectly, while the more direct attack on poverty alleviation would rightfully be the preserve of fiscal policy. monetary and financial sector policies in india should perhaps be focusing increasingly on what dreze and sen call “ growth mediated security ” while “ support - led security ”, mainly consisting of direct anti - poverty interventions are addressed mainly by fiscal and other governmental activities.