What priorities are required for reshaping the post-global crisis India?

The first priority is to achieve a more stable distribution of demand across India. As you all know, imbalances widened significantly in the run-up to the crisis. By this I mean that current account deficits in the country, and current account surpluses in others, had become very large. Large imbalances may reflect domestic problems or distortions, which could lead to potentially painful adjustment problems over time. They could result from problems with the monetary system and exchange rate regimes, which could cause potentially systemic problems later on.

The recent experience has demonstrated that fast-paced and hard-hitting financial crises can lead to an extraordinarily large demand for official resources. In India, such resources are needed to address underlying balance of payments problems. But even more important than our resources and our financing modalities will be the confidence-and the trust-of other countries. Without these, we will be hard pressed to succeed in our efforts to strengthen the monetary system.I believe that the RBI has the potential to serve as an effective and reliable provider.

In my opinion, the crisis has revealed weaknesses in the regulatory and supervisory frameworks in the country, though it was not so hard, failures in risk management systems of financial institutions, and a breakdown in market discipline. Reforms are needed on many fronts to address these weaknesses, so that we can protect the financial system against future crisis. Encouraged by the reform effort, adopt a sweeping change to truly reshape the Indian financial system.