, we have had our share of concerns on managing the capital account. during 2007 / 08, the year before the crisis, we had flows largely in excess of our current account deficit ( cad ). in the crisis year of 2008 / 09, flows were far short of the cad. last year, 2009 / 10 we were on a sweet spot, capital flows were just a tad higher than the cad. such sweet spots, of course, are uncommon. during the current year, 2010 / 11, we saw some outflows during the spring when the unfolding greek drama triggered a flight to safety. but over the last few months, we have seen rapid inflows no doubt triggered by the promise of higher short - term returns. and so, we are back to facing the usual dilemma of managing the impossible trinity. two considerations have guided our policy. first that, our policy should be as stable as possible without flip flop moves. second, our use of controls should be prudent. the aftermath of the crisis has triggered a debate on the costs of building up reserves as a self - insurance. we have to acknowledge that their foreign exchange reserves have insulated emes from the worst impact of the crisis. there is an argument that a multilateral option of a pre - arranged line of credit that can be easily and quickly accessed can be a substitute for costly self - insurance. such a multilateral option is necessary but not sufficient. emes need a plan b and reserves are that plan b. and a good plan b is often the difference between the success and failure of plan a. furthermore, in evaluating the level of reserves and the quantum of self insurance of a country, it is important to distinguish between countries whose reserves are a consequence of current account surpluses and countries with current account deficits whose reserves are a result of capital inflows in excess of their economy ’ s absorptive capacity. india falls in the latter category. our reserves comprise essentially borrowed resources, and we are therefore more vulnerable to sudden stops and reversals as compared with countries with current account surpluses. in recent months, when inflows have swamped most emes, several central banks have intervened in the forex markets. we haven ’ t despite receiving more portfolio inflows last month ( september 2010 ) than in any other single month on record. the reason why we did not feel the need to intervene is because our absorption, driven by a widening current account deficit as imports have surged on

42 policy initiatives aimed at improving the functioning of the eu financial system by 2005. among the objectives underlying the plan are the creation of a single wholesale financial market in the eu and open and secure retail markets. in general, the emphasis is on promoting financial markets, which are considered to be underdeveloped in europe. although more than half of the fsap initiatives have been adopted or finalised, much work remains as agreement is proving difficult in some areas. one such area is that of methods of corporate governance. a wide variety of systems exists at present, varying, in part, according to the role of banks versus markets in corporate governance and the extent to which corporate governance mechanisms associated with growth of financial markets can co - exist with other methods based on institutions. the eu is sensitive to such differences. however, the greater development of markets necessitates the implementation of rules to regulate market behaviour, for example, in the areas of takeovers and takeover bids. such differences need to be overcome quickly if the aim of implementing the fsap by end - 2005 ( and the rcap by end - 2003 ) is to be realized. in this connection, the recent adoption by the commission of a directive on prospectuses will introduce a truly single passport for issuers. also, a commission regulation has recently been adopted on the application of international accounting standards ( ias ) in the eu. it requires that all eu listed companies prepare their consolidated accounts in accordance with ias from 2005 onwards. aside from the stumbling blocks in specific areas, there is also the more general question of the extent to which the infrastructure required for the smooth operation of a cross - border financial system will tend to emerge naturally through the operation of market forces and the extent to which it needs to be actively promoted by the authorities. i am inclined to think that a more proactive role for the authorities is needed to encourage the development of pan - european settlement and clearing systems, securities depositories, etc. market forces may be impeded by the existence of strong national interests ( existing national organisations often have strong monopoly powers which operate to prevent change ) and / or the presence of diverse regulatory and legal environments ( if a pan - european institution has to observe many different national regulations, depending on the nature of the transaction, then little will be gained by such an institution ’ s existence ). further financial integration brings not just benefits, but also challenges in terms of the measures needed to secure financial stability and to protect consumer and investor interests