world, investors heavily depend on rating agencies for information about the risks attached to various instruments. these agencies have been strongly criticized recently. it is not my purpose to enter into any blame game. suffice it to say that there has been a deep misunderstanding between investors and rating agencies as to the scope and true meaning of ratings. most investors were not fully aware that rating did not encompass liquidity risk ; nor did they realize that ratings for structured products were intrinsically more volatile than for more simple " plain vanilla " securities. the use of identical metrics for rating what are fundamentally different categories of assets certainly did not help and may have contributed to the confusion. some observers have argued that investors should be faulted for relying too much on ratings. instead, the argument goes, they should do their homework and put themselves in a position to directly assess risks. but it is doubtful that we can dispense of the rating process. if each and individual investor had to carry their own due diligence, the costs of gathering information would be prohibitive and this would introduce important frictions in the functioning of the market. so, future work should concentrate on how to make the rating process clearer and more explicit and to preserve and strengthen its integrity. a second, alternative view, on the collapse and confidence and liquidity would point at the inadequation of capital to risk in the new securitized model. ultimately, the ability of an investor to carry risk is determined by her capital base. capital must be sufficient to absorb the potential losses if risk materializes. if not, confidence may vanish and liquidity may disappear. to quote stephen cecchetti 1, " in the context of financial intermediaries, capital plays the role of collateral ". so, for the securitized model to work, there cannot be too big a disconnect between the allocation of risk and capital in the system. this is true both at the aggregate level and for each individual issuer of securities. at the aggregate level, insufficient capital leads to excess leverage and, as a consequence, to excess fragility. for each individual issuer of securities, carrying risks with little ( or no ) capital increases the probability of a liquidity crisis. it may be that, as time goes by and we look more closely at what happened, this second view will gain in importance. i would note that cracks occurred in those places – the conduits and especially the sivs – where there was no

. 19. on the external front, de - globalisation and protectionism are gaining ground as witnessed during the recent global supply - chain shock. it is thus necessary to build and strengthen bilateral trade relations to deal with such challenges. india has recently signed bilateral trade agreements with the uae and australia and more such agreements are works in progress. the average current account deficit to gdp ratio stands at 3. 3 per cent during h1 : 2022 - 23. the slowing global demand is weighing on merchandise exports ; but our exports of services and remittances remain strong. the net balance under services and remittances remains in a large surplus, partly offsetting the trade deficit. consequently, the current account deficit is eminently manageable and within the parameters of viability. 20. on the financing side, net fdi flows remain strong and foreign portfolio flows have resumed since july 2022, with intermittent outflows from time to time the size of forex reserves is comfortable and has gone up from usd 524 billion on october 21, 2022 to usd 572 billion as on january 13, 2023. further, india ’ s external debt ratios are low by international standards. this has enabled the reserve bank to eschew measures to control capital flows and take steps to further internationalise the domestic currency, even during episodes of significant capital outflows. 21. every global risk - off episode resulted in an appreciating us dollar imposing downward pressures on most other currencies. comparison of the performance 10 of the rupee across successive crisis episodes source : data from bloomberg has been used to evaluate the performance of rupee. tells its own tale. during the global financial crisis, the rupee witnessed its worst depreciation - between april 1, 2008 and march 3, 2009 when it lost 23 % against the us dollar. similarly, it depreciated by 22 % during the taper tantrum between may 01, 2013 and aug 28, 2013. however, the extent of rupee depreciation was lower in each subsequent episode of turbulence. in the initial days of the pandemic, i. e., between february 17, 2020 and april 21, 2020, the rupee depreciated by only 7 %. even during the period of geopolitical tensions emerging out of ukraine in 2022, while the rupee lost 9 % against the us dollar between february 24, 2022 and october 19, 2022, it outper