even the existing limit is not used up. there is something out there we have to fix about the appetite for the corporate bond market. it ’ s not a restriction placed on the capital account front. as far as fii on government debt, yes certainly, we have expanded that quite rapidly in the last three or four years, but there is need for going a bit more cautiously, because as we ’ ve seen during the crisis, countries with large sovereign debt exposure to foreigners suffered destabilizing volatility. so we need to balance the concerns of stability with concerns of less expensive foreign flows. wsj : when you take over in 2008 did you make a conscious decision to take a more hand ’ s off approach when it comes to foreign exchange interventions? subbarao : that ’ s a judgment outsiders will have to make. by inclination, i believe that markets should be allowed to function and that we should minimize our intervention and that ’ s good for building the resilience of the economy. wsj : but it does help on the monetary policy side, as a flexible exchange rate makes your interest rate policy more potent? subbarao : certainly. that ’ s very fresh in my mind. i gave a speech last week on the impossible trinity, so to the extent you have a freely floating exchange rate you have greater, more independent monetary policy. wsj : are you satisfied with the intervention you undertook last year on the foreign exchange market? subbarao : yes. i would think so, especially on speculation. if you don ’ t intervene, the speculative forces could be self reinforcing which is that exporters would defer bringing their receipts in and importers would buy forwards. that ’ s a self - reinforcing feedback loop. to the extent that we curbed speculation and showed that determination, it certainly helped. wsj : so 54 rupees to the dollar was a level you weren ’ t comfortable? subbarao : i can ’ t really comment on a specific exchange rate. we were looking at the first derivative, not the stock figure, but the rate at which it was going. wsj : are these foreign exchange measures temporary, do they fit in you capital account liberalization trajectory? subbarao : some of them do fit in with our capital account thinking. some of the measures to curb speculation, they are permanent until removed, but that ’ s not saying much. we ’ d have to take

government borrowing are so high, i think there is quite a bit of synergy between a central policy which is charge of monetary policy which is also doing debt management? wsj : what ’ s the synergy, that you not issue debt? subbarao : no. that ’ s not an option. that we can ensure, that as much as the government has to borrow, that there is sufficient liquidity so the private sector crowding out is minimized. we can ensure that the interest rates are still manageable and competitive for the private sector. and also recognize that the conflict of interest angle is somewhat overplayed. when 70 % of the banking sector is with the government, there is a conflict of interest if debt management is done by an office that has some affiliation with the government. i don ’ t think we will use our function as the debt manager to put pressure on the government about the fiscal deficit. there are other avenues to pressure and to argue our case. as far as debt management is concerned, we want to be efficient debt managers. wsj : how much does china, as india ’ s largest trading partner, weigh on your economic analysis? subbarao : perhaps we reckon with that possibly less than we should be doing. our trade with china is growing, our links with china are growing and we ’ ve allowed corporates to raise debt in yuan. i think chinese economic management, particularly their economic policies should be part of our reckoning more than it is now. wsj : you were recently reappointed for another two year term, running out in september 2013. would you like to serve after that? subbarao : no. bis central bankers ’ speeches