allied activities, a sector that produces 21 per cent of gdp, but supports nearly 60 per cent of the population. there is often substantial loss of output owing to inadequate storage and transport facilities and paucity of adequate food processing capacities. this necessitates greater public and private investment on these post - harvest facilities to not only increase value addition, but also to improve the agriculture - industry linkage. the second issue of import is the simplification of procedures. cumbersome procedural formalities introduce delays and results in significant output losses. added to these, the de - reservation of items from exclusive production under ssi units is likely to permit the sector reap economies of scale and scope and enhance competitiveness. the third is the issue of finances. the incipient investment boom in infrastructure, industry and services will yield best results only if enormous resource flows are successfully intermediated at a low cost. this will depend on the ability of the financial sector to process information properly and to intermediate the extant savings into optimal investment by specific firms and sectors. the fourth aspect of stepping up investment is to address the deficiencies in infrastructure. the decline in public spending on infrastructure has not been adequately compensated by the private sector, possibly owing to difficulties in the regulatory environment. therefore, nurturing an appropriate policy framework, with a conducive environment for public - private participation, remains the key to accelerating investment in infrastructure. the final aspect is the need to complement domestic investment with higher foreign investment, primarily in the form of fdi. such investment is likely to trigger technology spillovers, assist human capital formation and more generally, improve the efficiency of resource use. over the reform period, more and more banks have begun to get listed on the stock exchange, which, in its wake, has led to greater market discipline and concomitantly, to an improvement in their governance aspects as well. this has led to a broadbasing of the ownership of psbs. such diversification of ownership has also led to a qualitative difference in their functioning, since there is induction of private shareholding as well as attendant issues of shareholder ’ s value, as reflected by the market capitalisation, board representation and interests of minority shareholders ( reddy, 2002 ). the issue of mixed ownership as an institutional structure where government has controlling interest is a salient feature of bank governance in india. such aspects of corporate governance in psbs is important, not only because psbs dominate the banking industry, but also because

america and elsewhere have accentuated these pressures. as many of you would be aware, india embarked on a strategy of economic reforms in the wake of a serious balance - of - payments crisis in 1991 ; a central plank of the reforms was reform in the financial sector and, with banks being the mainstay of financial intermediation, the banking sector. the objective of the banking sector reforms was to promote a diversified, efficient and competitive financial system with the ultimate objective of improving the allocative efficiency of resources through operational flexibility, improved financial viability and institutional strengthening. a summary profile of the banking industry over the last 15 years is presented in table 5. as you are aware, the financial system in india by the late 1980s was characterized by dominant government ownership of banks and financial institutions, widespread use of administered and variegated interest rates, and financial repression through forced financing of government fiscal deficits by banks and through monetisation. thus, although a great degree of financial deepening had indeed taken place and financial savings had increased continuously, financial markets were not really functioning, and there was little price discovery in terms of the cost of money, i. e., interest rates. the efficiency and productivity enhancing function of the financial system was severely handicapped. hence, a widespread financial sector reform effort has been underway since 1991. let me briefly sum up the major areas of banking sector reforms2 : • financial repression through statutory pre - emptions has been reduced, while stepping up prudential regulations at the same time. • interest rates have been progressively deregulated on both the deposit and lending sides ( box i ). restoration of the health of the banking system has involved : • restoration of public sector banks'net worth achieved through recapitalisation where needed ( total cost less than one per cent of gdp ). • competition increased through entry of new private sector banks and foreign banks. • higher levels and standards of disclosure achieved to enhance market transparency. • bank regulation and supervision strengthened towards international best practice. • micro prudential measures instituted. • supervision process streamlined with combination of on - site and off - site surveillance along with external auditing. • risk based supervision introduced. i have discussed the details of financial sector reforms in india elsewhere ; see mohan ( 2005 ). a detailed discussion on this aspect is contained in bhide et al. ( 2001 ). • process of structured and discretionary intervention introduced for problem banks through a prompt corrective action mechanism. • ownership of