the underlying demand and supply conditions to determine the exchange rate movements over a period, in an orderly way. to this end, the rbi monitors closely the developments in the financial markets at home and abroad, and takes such monetary, regulatory and other measures as considered necessary from time to time. the conduct of exchange rate policy is guided by three major purposes : first, to reduce excessive volatility in exchange rates, while ensuring that the movements are orderly ; second, to help maintain an adequate level of foreign exchange reserves and third, to help eliminate market constraints with a view to developing a deep and liquid foreign exchange market. the policy is aimed at preventing destabilising speculation in the market while facilitating foreign exchange transactions at market rates for all permissible purposes. there is a wide consensus that india ’ s exchange rate policy has stood the test of time, despite several domestic and external developments, including the severe currency crises which characterised the 1990s. recent international research on viable exchange rate strategies in emerging markets has lent considerable support to the exchange rate policy followed by india. global economy and india the debate in india has customarily been on the contours of the public policy in the context of increasing global economic integration. more recently, however, a debate in the rest of the world has been in evidence on the challenges likely to be faced by the global economy on account of progressively increasing global integration of the indian economy. hence, there is merit in looking at, perhaps illustratively, some of the global challenges of our integration while we move forward in this regard. over the next half - century, the population of the world will age faster than during the past half - century as fertility rates decline and life expectancy rises. in europe, the demographic profile is already tilted towards the higher age group and by 2050, this is projected to accelerate. projections suggest a turning point between 2010 and 2030 when the european union, north america and japan will experience a substantial decline in savings rate relative to investment which may be reflected in large current account deficits. most of the high performers of east asia and china are in the second stage of the demographic cycle. elderly dependency is expected to double in these countries by 2025. their working age populations will increase modestly first and then shrink. these projections suggest that east asia could increasingly become an important supplier of global savings up to 2025 ; however, rapid population ageing thereafter would reinforce rather than mitigate the inexorable decline of global savings.

of statistical information. it says when discussing fatalities on highways on page 78 : “ four times more fatalities occur on the highways at 7 p. m. than at 7 a. m. ” this of course does not imply, as some newspaper had suggested, that it is more dangerous to drive in the evening than in the morning. recast in the language of conditional probabilities, that p ( accident | 7 p. m. ) should not be confused with p ( 7 p. m. | accident ). unfortunately, it was. one more example, a study of the deaths arising out of road accidents revealed that 98 percent deaths occurs while driving on the left side of the road, whereas, only 2 percent death occurs in case of bis central bankers ’ speeches people travelling in the middle of the road. hence, it was wrongly inferred that it was safer to travel in the middle than on the side of the road. 17. another area of concern has been the misuse of statistics coming from spurious correlation and attributing such relation to type of cause and effect phenomenon. in most cases a common variable, most importantly “ time ” works as a link. let us take another example. number of people watching tv serials and number of buffaloes will register a high correlation. if one tries to link them and finds a causal relationship is simply absurd. it is easy to get carried way. one of the prime misuses of statistics is finding a strong relationship between two variables when actually such correlation is spurious. however, exploration of such behaviour has also led to path breaking developments in econometrics. for example, most of the macroeconomic series have strong time trend and thus have strong correlation. prima facie one may suspect the existence of spurious correlation. however, further exploration in such relationships led the foundation of the concept of cointegration. if two variables have a common trend, then there could be a possibility of a long - run equilibrium relationship between them. this statistical finding opened up a new dimension of modern economics and cwj granger was awarded nobel prize in economics for this in 2003. 18. let me now give you an example from the banking world. the concept of inflation is often misunderstood by people. you would often hear this refrain from many persons that despite rbi claiming that inflation has come down in the recent past, the prices have not come down. so, what is the truth? well, the truth is simply that inflation is indicated as