asian crisis owing to the reforms undertaken in previous years and proactive and timely policy measures initiated by the reserve bank to minimise the contagion effect. monetary tightening coupled with flexible exchange rate and steps to bolster reserves through issuance of resurgent india bonds ( ribs ) helped in stabilizing the bop. the bop came under some stress again in the first half of 2000 – 01 due to a sharp rise in oil prices and increase in interest rates in advanced countries. at the same time, india ’ s software exports got a boost following the demands to address the y2k challenges. this also encouraged migration of indian software engineers to the advanced countries. as a result, the surplus in the services exports and remittance account of the bop increased sharply which more than offset the deficit in the trade account. software exports rose from 0. 9 per cent of gdp in 1999 – 2000 to a peak of 3. 8 per cent of gdp by 2008 – 09. private remittances also rose from 2. 7 per cent of gdp to 3. 8 per cent during this period. thus, in the 2000s software exports and private remittances emerged as two main financing items for the current account mitigating to a large extent the merchandise trade deficit ( tables 2 & 3 ). owing to a combination of factors, in fact, the current account recorded a surplus during 2001 – 04. subsequently, as international oil prices started rising and domestic growth picked up, deficit in current account re - emerged during 2004 – 05 to 2007 – 08 albeit remained range bound. after a period of stability, india ’ s bop came under stress in 2008 – 09 reflecting the impact of global financial crisis. as capital inflows plummeted, india had to draw down its foreign currency assets by us $ 20 billion during 2008 – 09. stress since the collapse of lehman brothers largely emanated from decline in india ’ s merchandise exports and deceleration in growth in services exports. though there was some improvement during 2010 – 11 on the bis central bankers ’ speeches back of a strong pick - up in exports mainly led by diversification of trade in terms of composition as well as direction, it proved to be short - lived. bop again came under stress during 2011 – 12 as slowdown in advanced economies spilled over to emerging and developing economies ( edes ), and there was sharp increase in oil and gold imports. let me now turn to the financing aspects of the current account. india ’ s

bis central bankers ’ speeches the current account also comes under stress as is evident in the present context. going forward, since india ’ s linkage with the world economy, in terms of trade and finance, is likely to grow further, it is important that resilience in its trade account is built up mainly by promoting productivity based export competitiveness and improving domestic fundamentals that are supportive of least costly non - debt creating flows, particularly foreign direct investment ( fdi ). in this context, i make a few suggestions. first, the current level of cad is far above the level sustainable for india. as per estimates, at a nominal growth rate of about 13 per cent, the sustainable current account to gdp ratio is 2. 3 per cent ( rangarajan, 2012 ). 5 reserve bank ’ s own research shows that economy can sustain cad of about 2. 5 per cent of gdp under a scenario of slower growth ( rbi, 2012 ). 6 a slowing global economy and protracted high levels of unemployment in advanced economies make it difficult to boost services exports in the short run. if the slowdown continues, it could also have an adverse impact on inward remittances. hence, there is a need to reduce imports and boost merchandise exports to bring the cad to sustainable levels. second, structural policy measures are needed to reduce vulnerability emanating from high oil and gold imports. while oil has been a major component of india ’ s imports, the sharp increase in demand for gold has put an additional pressure. during 2008 – 09 to 2011 – 12, on average, the net gold imports stood at about 2 per cent of gdp, almost double the level recorded during 2004 – 05 to 2007 – 08. thus, during the same period, cad - gdp ratio, excluding net gold imports, would seem less problematic at 1. 1 per cent as compared to a surplus of 0. 2 per cent. in addition to the traditional motive of gold demand for jewellery, gold seems to have become a safe investment asset and a hedge against inflation as is observed in other advanced economies. its dematerialisation like any other financial product can rangarajan, c. ( 2012 ), “ india ’ s external sector : do we need to worry ”, ecgc business commencement commemorative lecture at export credit guarantee corporation of india ltd., mumbai on october 3. reserve bank of india ( 2012 ), annual report, 2011 – 12. bis central bankers ’ speeches reduce its physical imports ( gokar