had to create an effective outof - court resolution system. having done that, we are now working with banks to recognize and resolve stressed assets, even while getting them to raise capital where necessary. our intent is to have clean and fully provisioned bank balance sheets by march 2017. perhaps the hardest aspect of this stabilization agenda has been to persuade the economics commentariat of the need for macroeconomic stability when growth is below expectations. the constant call of the economic sirens, seeking to lure the economy onto the shoals of economic distress, is “ lord, give us stability, but not just yet! ” growth is always more important, no matter how the risks build up. usually, the sirens call on you to not be doctrinaire ( after all, only academic economists care about fiscal deficits ), to be practical ( does it really matter if an npa is recognized a quarter or three later ), and to appreciate indian realities ( everyone may say they hate inflation but no one really wants to bear the pain of the disinflationary process ). i believe we are in the process of proving the sirens wrong. given the inhospitable world economy and two successive droughts in india, either of which would have thrown the economy into a tail spin in the past, our focus on macroeconomic stabilization must be part of the explanation why we have over 7 percent growth, low inflation, and a low current account deficit unlike some of our emerging market counterparts. now, we have to build on this sound base. what will be particularly important is how we engage with the world economy. i want to talk specifically about trade, the exchange rate, capital flows, and ideas. international trade for the first time in decades, global trade has consistently grown more slowly than global output. there are a number of possible explanations ; as countries get richer, non - traded services constitute a greater fraction of gdp, causing gdp to grow faster than trade. also, with trade - intensive capital goods ’ investment muted because of global overcapacity, trade grows more slowly than gdp. finally, as industrial countries become more competitive, and as china moves up the value chain, more of the inputs going into final products are being sourced from inside a country rather than from outside the country. some global supply chains are therefore contracting. for all these reasons, the heady days when indian trade in goods and services were expanding at a double digit pace will probably only be a memory for some time. it is

push this discussion a little further though. if the rbi could press a button and get the exchange rate it desired ( as some economists imagine is possible ) should it aim for a strong rupee or a weak rupee? non - economists typically advocate a strong rupee – not only does it convey national strength, but you can buy more stuff with your rupee when you go abroad, and imports are cheaper. the non - economist is consumer focused. of course, it is precisely because domestic tourism and domestic production are disadvantaged relative to tourism abroad and foreign production that many economists prefer a weak rupee. yet these modern day, producer - focused, mercantilists do not acknowledge that undervaluation is a subsidy to domestic producers paid for by domestic consumers and savers. the domestic consumer pays too high a price for foreign goods, and interest rates have to be kept artificially low so as to reduce the cost of holding the enormous foreign exchange reserves built up through intervention. there are costs over the long run also. a sizeable portion of the investment made in the country based on an artificially low exchange rate will turn out be uncompetitive when the exchange rate normalizes. one might argue that this reflects the experience of japan in the 1990s and possibly the experience of parts of chinese industry today. an undervalued exchange rate might have made sense in the past for countries that had weak firms and small domestic markets. india is in a very different position today from the export - led east asian tigers when they embarked on their growth path. the ideal exchange rate for us is neither strong nor weak, it is just right. typically, market forces get you to this goldilocks rate. yet there are circumstances where rapid capital inflows or outflows can move the rate to a level that is unlikely to be supported by fundamentals. while the rbi would not claim to know precisely what the equilibrium level of the exchange rate is at any given point in time, we intervene to moderate adjustment whenever we believe the movement is extreme, driven by sentiment, and likely to be reversed. our intent is to prevent overshooting and undue volatility, rather than to stand in the way of the needed adjustment. in fact, if we focus on manufacturing exports which are perhaps less susceptible to high frequency price movements, based on limited data for recent years we find that the magnitude of the slowdown in india over the last few years is comparable or even less than many emerging markets.