Well rework plan on rupee convertibility: Subbarao

India has drafted a plan on fuller capital account convertibility. This includes a three-phase plan extending to 2010-11 and would allow greater movement of capital in and out of the local currency,but progress has been limited so far. The rupee has been convertible on current account since 1994,meaning it can be changed freely into foreign currency for purposes like trade-related expenses. But it cannot be converted freely for activities like acquiring overseas assets.

Subbarao was emphatic that a lesson from this crisis is that pure inflation targeting does not work,because price stability,though necessary,is no guarantee of financial stability. He also explained why India has not adopted an explicit inflation emphasis even though price stability is clearly one of the overriding objectives of the Reserve Bank.

Subbarao also said large government borrowing influenced monetary policy.

He also said banks needed to transmit policy signals or the central banks ability to contain inflation gets impaired. Banks,saddled with costly deposits,did not match the RBIs 425 basis point cut in rates between October 2008 and April 2009.

Nobel laureate Andrew Michael Spence,in his enlightening keynote address,questioned the Washington Consensus,the often highlighted formula for success,which presumed a limited role for the government. He highlighted the role of public investment in emerging market economies,both for human capital formation and addressing the infrastructure constraint to growth,besides promoting inclusive growth.

The broad macroeconomic challenges for such economies,he stressed,include good governance,management of exchange rate,sequencing of capital account,real sector reforms balancing job creation versus job destruction and the fiscal situation. He outlined four clear roles for central banks which are more or less established. These are managing inflation,managing shocks both external and internal,managing volatility with skill and judgement and achieving a level of autonomy while acquiring credibility.

Bank of France Governor Christian advocated that financial stability should be the second pillar of strategy. Financial imbalances are better addressed by macro-prudential policy and there is a need to better understand the interactions between monetary and macro-prudential policy, he said.

Reserve Bank of Australia Governor Glenn Robert Stevens put forward the argument that notwithstanding the questions raised about the utility of inflation targeting in the current crisis,it would be wrong to abandon it completely. Instead,it would be useful to develop a more realistic model explaining the interactions between the financial sector and monetary policy, he said.

With agencies