k c chakrabarty : prospects for economic growth and the policy imperatives for india address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the inaugural plenary of the national conference on leadership, at the confederation of indian industry ( cii ) - suresh neotia centre of excellence for leadership, kolkata, 10 december 2010. * * * the assistance provided by dr m saggar in preparation of this address is gratefully acknowledged. mr harshvardhan neotia, chairman, cii - suresh neotia centre of excellence for leadership, distinguished guests, ladies and gentlemen, let me begin by thanking the organisers for inviting me to deliver this address on a theme which is both topical and of considerable relevance. my objective is to give a realistic assessment of the prospects of india ’ s economic growth, and the policy imperatives to achieve what is within our reach, while also ensuring that we do not fall off the cliff in an attempt to cross the valley. our success will depend on grooming innovative and focussed leadership at every level of the society. there are several successful business leaders in the audience and on the dais today at this “ second national conference on leadership ”. the cii believes that in order to succeed in india ’ s mission to achieve sustained growth and competitiveness, the quality of leadership and human resource management plays a very significant role and is one of the key requirements for achieving business excellence. the cii - suresh neotia centre of excellence for leadership is facilitating in a big way the growth objectives through the development of leadership and through these deliberations on what policy imperatives are necessary to grow at a rapid pace. i am sure the institute would soon turn into a premier institution of global fame to develop business leaders not just in india but for other emerging markets also. my talk today would be in two parts. in the first, i would focus on ( 1 ) the upsurge in economic growth since the 1980s and further acceleration during 2003 – 04 to 2007 – 08, ( 2 ) the impact of the crisis and the v - shaped recovery that followed, ( 3 ) the near term growth prospects and challenges for india in a world facing multi - speed recovery and ( 4 ) long - term growth prospects for india. part ii would contend that in spite of growth success and remarkable near term growth prospects, growth sustainability in india would critically hinge on the following three things : ( 1 ) our ability to

centralised in one particular database. that way we know at any point in time, the detail exposures of any companies and individuals. the other important point to note is that we did not narrow the application of measures to specific geographical locations and house type or price in order to avoid circumvention or abuse as developers and lenders can easily build or finance houses at the edge of a restricted zone or price range, or even create a new house type ( e. g. small office home office ( soho ) ). in this case, we need to conduct a bit more research before we implement any macroprudential policies. the caps on financing tenure, together with requirements to comply with responsible financing practices ( including adoption of prudent debt service ratio ( dsr ) threshold and bis central bankers ’ speeches definition of income and debt obligations for computation of dsr ), were not limited only to banks. the caps were also imposed on non - regulated entities in order to avoid regulatory arbitrage or shifting of risks to these non - bank lenders. third, preserving appropriate discretion for authorities to act is important, with respect to the timing, mix and calibration of measures. we do not adopt a rule - based approach to the implementation of macroprudential measures. the reason is that, it can avoid a “ self - fulfilling prophecy ” if the formula for determining the timing, quantum and criteria for the deployment of macroprudential policies are made public or applied in mechanistic way – unintended consequences could arise or systemic risk could suddenly build up right before the effective date as economic agents try to “ beat the clock ” by getting ahead of the implementation. this approach provides us with greater flexibility to use an optimal mix of macroprudential and other measures under varying circumstances – this is different from the uk where legal constraints limit the choice of macroprudential instruments that can be used, or compared to turkey which uses quantitative triggers for the new reserve requirement framework. however, discretion needs to be accompanied with political willingness to act when required – this has to be demonstrated over time and supported by a matured, effective governance and accountability framework. in malaysia, we ensured that the key administrators in the government fully understand the objective of the macroprudential measures to keep the household indebtedness and the housing speculation in check, prior to the implementation. fourth, pre - emptive implementation is key to create space for measures to be implemented progressively and inc