duvvuri subbarao : impact of the global financial crisis on india – collateral damage and response speech by dr duvvuri subbarao, governor of the reserve bank of india, at the symposium on “ the global economic crisis and challenges for the asian economy in a changing world ” organized by the institute for international monetary affairs, tokyo, 18 february 2009. * * * global outlook the global economic outlook deteriorated sharply over the last quarter. in a sign of the ferocity of the down turn, the imf made a marked downward revision of its estimate for global growth in 2009 in purchasing power parity terms – from its forecast of 3. 0 per cent made in october 2008 to 0. 5 per cent in january 2009. in market exchange rate terms, the downturn is sharper – global gdp is projected to actually shrink by 0. 6 per cent. with all the advanced economies – the united states, europe and japan – having firmly gone into recession, the contagion of the crisis from the financial sector to the real sector has been unforgiving and total. recent evidence suggests that contractionary forces are strong : demand has slumped, production is plunging, job losses are rising and credit markets remain in seizure. most worryingly, world trade – the main channel through which the downturn will get transmitted on the way forward – is projected to contract by 2. 8 per cent in 2009. policy making around the world is in clearly uncharted territory. governments and central banks across countries have responded to the crisis through big, aggressive and unconventional measures. there is a contentious debate on whether these measures are adequate and appropriate, and when, if at all, they will start to show results. there has also been a separate debate on how abandoning the rule book driven by the tyranny of the shortterm, is compromising medium - term sustainability. what is clearly beyond debate though is that this great recession of 2008 / 09 is going to be deeper and the recovery longer than earlier thought. emerging economies contrary to the “ decoupling theory ”, emerging economies too have been hit by the crisis. the decoupling theory, which was intellectually fashionable even as late as a year ago, held that even if advanced economies went into a downturn, emerging economies will remain unscathed because of their substantial foreign exchange reserves, improved policy framework, robust corporate balance sheets and relatively healthy banking sector. in a rapidly globalizing world, the ” decoupling theory

pace and content of capital account liberalisation will depend upon the future events, but the regulatory regime has to be clear and transparent. a regulatory regime that creates uncertainty and obfuscates imposes tremendous cost on the economy and the society. e. finally, the issue of fair pricing. forex customers, especially from small and medium enterprises and retail segments, have approached us on several occasions highlighting “ high ” charges levied by authorised dealer banks on their forex transactions. not only there appears to be a wide variation amongst the banks in the charges levied on the smaller customers, there appears to be a complete lack of transparency regarding the information on charges levied for such customers. i am aware that fedai has issued a special circular in this regard but i once again urge all banks assembled here to pay due attention to this aspect before calls for regulation of forex rates become more vocal. 33. i wish the conference, whatever is left of it, all success. i also wish each one of you all success in the years to come. as i leave the stage, rather than singing along with frost that we have miles to go before sleeping, i would rather echo tennyson ’ s brook ( read markets ) that will surge along irrespective of men ( like me or any other ) who may come and go. i shall of course continue to watch the developments from the sidelines. good bye. bis central bankers ’ speeches