as you may be aware, there are proposals for allowing international settlements of indian government bonds through global securities settlements systems like euroclear. such settlements could potentially improve acceptability and attractiveness of indian bonds among foreign investors. however, there is also a view that one needs to be conscious of the downside risks such as liquidity getting fragmented as some of the fpis presently operating in india may like to move off - shore and development of a parallel government securities yield curve outside india [ creating yet another ndf - like market overseas with all the attendant issues ]. you may perhaps like to debate this issue as well during the course of your deliberations. 8. let me now flag a few issues related to market development and where we see the role of pds. ( a ) auction participation ( i ) active participation : obviously we expect your continued active participation in both the primary and secondary markets for g - sec and in bringing in new investors to the market. active participation is expected across all maturities, not only in benchmark bonds. to meet the diverse funding and hedging needs of the participants, there is need for a wide array of instruments and products which would also offer benefits of portfolio diversification. over the years, several instruments like zero - coupon bonds, floating rate bonds, separate trading of registered interest and principal of securities ( strips ), bonds with call and put options, cash management bills, inflation indexed bonds, etc. have been introduced after wide consultations with market participants. the success with regard to these products has been disappointing. we look towards primary dealers to be active not only in auctions of fixed rate bonds but also to contribute significantly to popularizing other interest rate products. ( ii ) responsible bidding : responsible bidding is expected from pds and we look to them as providers of valuable information with regard to pricing of the bonds in auctions. i am afraid that our expectations on this count are not fully met at least in some cases. the bidding behavior of actively cornering commission in underwriting auctions and defensively bidding in auction to avoid allotment does not do justice to the pd role. i want you to reflect on this and also cogitate on whether a system of “ success ratios for dated g - sec auctions ” is an open option to encourage responsible and tight bidding in auctions or a negative incentive could be thought of for curbing wayward bidding and aid in better price discovery. ( iii ) robust business model : the

. although i believe i have offered plausible explanations for the acceleration of inflation this spring and summer and reasonable rationales for expecting inflation to moderate, i would feel much more confident about where we are heading if i had a more accurate bearing on the direction from whence we have come. in addition, in my view, if inflation failed to abate it could impose considerable costs on economic performance over time, a concern that brings me to the topic of monetary policy. monetary policy even if my relatively favorable forecast comes true, the level of short - term interest rates that will produce this forecast remains uncertain. obviously, as my fomc voting record indicates, i believe that, for now, the current level of short - term rates has the best chance of fostering this outcome. looking ahead, policy adjustments will depend on the implications of incoming data for the projected paths of economic activity and inflation. i must admit i am surprised at how little market participants seem to share my sense that the uncertainties around these paths and their implications for the stance of policy are fairly sizable at this point, judging by the very low level of implied volatilities in the interest rate markets. as i have outlined tonight, i think that the risks to my outlook for economic activity may be skewed a bit to the downside, while those to my forecast of gradually declining inflation are tilted to the upside. in my view, in the current circumstances, the upside risks to inflation are of greater concern. although to date inflation expectations have remained contained, failure to check and then reverse the greater inflation pressures of earlier this year would risk embedding those higher inflation rates in the decisions of households and businesses, an outcome that would be costly to reverse and would impinge on the economy's long - term performance.