policy is that it should promote growth. not just growth, but sustainable growth, which in turn can be brought about only with inclusive growth, benefiting the society at large, but without undermining financial stability. now, a few words about what rbi does. apart from the quintessential central banking roles like formulation of monetary policy and printing and distribution of currency, we also manage the external sector, regulate and supervise banks, non - bank finance companies and segments of financial markets ( money, forex, government securities ). we also regulate the payment and settlement systems. we are banker to banks and to the government – federal and state governments. we are also the debt manager of the government, managing all their market borrowings, calibrating both the amounts and the timing to ensure that this does not crowd out other players. added to all this, and perhaps unique to central banking anywhere in the world, we are mandated to pay special attention to the agricultural and allied sectors and have created and hived off several institutions for channelizing credit to agriculture, industry, small and medium enterprises, housing, mutual funds, settlement of trades, etc., etc. we also have a key role at very micro levels in the development process. we are currently in the process of ensuring empowerment to a hitherto voiceless segment of society by facilitating their entry into the mainstream of economic activity by trying to bring them into the ambit of formal banking channel ( financial inclusion ) by customizing certain products and services for them. we are following up this objective by also educating the people ( financial literacy ) about the benefits of being part of the formal financial sector and the host of facilities bis central bankers ’ speeches and benefits they can demand from it. we are also following up with the government to include financial literacy in the curriculum of educational institutions so as to equip the young ones with the necessary skills before they enter the real world. having given you a bird ’ s eye view of our myriad functions, let me walk you through our policy formulation processes. before introduction of any new concepts, regulations or financial products, we generally elicit the opinions of various segments, i. e., stake holders, academicians, financial institutions, researchers, and laymen. we do this by placing a discussion paper on our website and the paper is converted into policy only after factoring in the various inputs so received. this serves the dual purpose of ( i ) preparing the market for the new product / di

##spensation and ( ii ) negating to a large extent the unexpected consequences that a possibly one sided regulation could have brought about. since we have been awarded the prize for the gradual introduction of new financial products into the markets, let me illustrate with an example on the guided, gradual, sequenced and calibrated development and integration of markets in india, one of which, namely, the forex market, mrs. gopinath and i have been privileged to witness almost since the very beginnings. forex markets started in india with the banks being required to maintain square or near square open exchange position and the central bank announcing the buying and selling rates. today the country can boast of a market with a daily turnover of usd 60 billion, with most of the products and their variants being traded and a central counter party ( ccp ) arrangement for settling inter - bank forex transactions. even today, corporates are allowed to access the market only to hedge an underlying exposure and not to take any punts on the currency. they are still not allowed to write options and thereby take on open ended risks. in recent times, the same thumb rule has been followed even while enabling credit default swaps ( cds ) contracts. in other words, little skeptical of the globally accepted, almost axiomatic belief in the self correcting mechanism of markets, but also conscious that too much regulation could throttle, we have put in place certain safeguards, which while allowing normal free play would guard against the ability of individual market makers to move markets in directions beneficial to them but detrimental to the stability of the system. we, therefore, prescribed limits on positions and leveraging keeping in view the interconnectedness of institutions in the financial system. the recent global meltdown occasioned precisely on account of these factors of excessive leverage coupled with lack of regulation have vindicated our stand that no systems that undermine the real economy should be allowed unbridled freedom as any ravages to the real economy take years to repair. at the same time, recognizing that well developed, efficient markets are a prerequisite for price discovery and critical from a central bank perspective for the efficient transmission of monetary policy impulses, the rbi has been playing a proactive role in developing the financial markets in a manner so as to ensure that they are in sync with the real economy. simultaneously, efforts are being made to develop infrastructure, technology and capabilities of market participants, while evaluating their ability to absorb shocks, and insisting on their putting