. it increased further to 2. 41 per cent during 2000 - 04. similar movement was exhibited by the gross fiscal deficit ( gfd ) as well. this has had a significant deleterious impact on the states ’ social expenditures including on education and health. developmental expenditure as a percentage of gdp had declined from 9. 92 per cent during 1990 - 95 to 8. 97 per cent during 1995 - 2000. expenditure on social services in general and education and health in particular witnessed a fall as a percentage of gdp during the second half on the 1990s as compared to the first half. the fall in states ’ expenditure on education and health due to fiscal deterioration impeded their role in promoting human development. table 2 : deficit indicators and social expenditure of states ( as percentage of gdp ) period developme social gfd ntal services education expenditure expenditure expenditure rd 1990 - 95 0. 71 1995 - 2000 1. 65 2000 - 04 2. 41 2004 - 05 re 1. 44 2005 - 06 be 0. 75 re : revised estimates, 2. 82 9. 92 3. 45 8. 97 4. 28 9. 35 4. 00 10. 18 3. 21 9. 35 be : budget estimates notes : rd : revenue deficit, 4. 88 4. 84 4. 98 5. 08 4. 94 2. 62 2. 59 2. 67 2. 47 2. 39 health expenditure 0. 81 0. 75 0. 71 0. 69 0. 70 gfd : gross fiscal deficit education includes sports, art and culture health includes family welfare with active initiatives of the states towards fiscal correction and consolidation, some signs of improvements have been visible in state finances in the recent period. the revenue deficit as a percentage of gdp came down to 1. 44 in 2004 - 05 ( re ) which is budgeted to further decline to 0. 75 per cent in 2005 - 06. similarly, gfd as a percentage of gdp was reduced to 4. 00 per cent in 2004 - 05 from the average of 4. 28 per cent in 2000 - 2004 and is budgeted to decline further to 3. 21 per cent in 2005 - 06. with improvement in state finances, there is a reversal of the trend of developmental expenditure also. the ratio of developmental expenditure to gdp increased to 10. 18 per cent in 2004 - 05 compared to an average of 9. 35 per cent during 2000 - 04. states ’ expenditure on social services witnessed similar movement during the comparable period. however,

clarity in communicating the problem and the risk. bis central bankers ’ speeches play in a crisis time than in normal times. the reserve bank is also of the view that in a bank dominated financial sector like that of india, the synergy between the central bank ’ s monetary policy and its role as a lender of last resort on the one hand and policies for financial stability on the other is much greater. in his speech at an icss seminar on the indian financial code last month, the finance minister alluded to the difficulties of getting legislation passed in india, especially a path breaking legislation of the type of the indian financial code suggested by the fslrc. he suggested that in the meanwhile, we should pursue the implementation of fslrc suggestions within the framework of existing laws. within the task defined by the finance minister, on the issue of safeguarding systemic risk, we need to think through whether the responsibility of fsdc board should be extended from being a coordination body to one having authority for executive decisions? what will that imply for the speed of decision making? can we clearly define the boundaries between financial stability issues falling within the purview of the fsdc and regulatory issues falling exclusively within the domain of the regulators? will this arrangement not mean compromising the synergy between monetary policy and policies for financial stability? and what will it mean for the autonomy of regulators? conclusion let me now sum up. i started with the broad lessons we learnt about the financial sector – markets and institutions – as a result of the crisis. i then talked about the efforts at the global level to reach agreements on financial sector reforms and argued why it is important for emerging economies to adopt international standards. i then addressed five specific reform areas, in each case talking about the lessons of the crisis, the response at the global level and our response at the national level. i have concluded with the institutional arrangements for safeguarding financial stability, within the context of the fslrc recommendations in this regard. as someone said, this crisis is too important to waste. it has taken a devastating toll on global growth and welfare. all of us in the financial sector have a responsibility to distil the lessons of the crisis, reflect them in our policies and enforce those policies effectively so that we can minimize the probability of another crisis. what this means is that both the regulators and the regulated entities have to build internal capacities and become knowledge institutions. i hope this conference will be an important step forward in that direction. i