Mr Jalan, you are taking over amidst much turbulence in the foreign exchange markets, both in India and abroad. What are the lessons to be learnt from the upheaval in the Asian financial markets?

Turbulence per se is not new. We have had the Mexican crisis. We now have the East Asian crisis. The lesson from all these crises is the same: developing and poor economies cannot afford to have large current account deficits over a sustained period of time. Our current account deficit is much lower than that of most Asian countries. True, the level of Non-Performing Assets (NPAs) is of concern, but there is one difference between the Indian and Asian situation: banks in Asia invested heavily in real estate and the financial markets. Therefore, the fall in currency values immediately affected their liquidity and profitability. That is not the case in India.

But, because of the high level of NPAs, banks don't lend. They prefer to park their funds in low-risk government securities or AAA corporate bonds.

That is a real problem. Surely, we cannot continue with a system in which the financial intermediaries, of which the banks are the most prominent, are unwilling to lend for productive purposes. It just cannot be.

Do you foresee any conflict between the RBI's role as the banker to the government and as monetary authority?

That conflict has diminished. The government has set fiscal deficit targets. It has also signed an agreement with the RBI restricting its borrowings through ad hoc T-Bills. So, though there is conflict between the two roles of the RBI, especially because there is no Constitutional limit on the amount of government borrowings, that conflict is much less pronounced today.

There has been a feeling in industry that the RBI has achieved price stability at the cost of growth. Will price stability be your prime concern too?

Yes, but I do not see any conflict between inflation and growth

But sir, such trade-offs do happen

Give me an example

In 1995, when inflation rose to double-digit levels, the monetary bolts were tightened. And industry faced an acute liquidity crisis

Let us accept, as a general proposition, that a country wants both price-stability and growth. But, at different points in time, the country may have differing priorities. In 1995, if inflation--not growth--was the main problem, something had to be done about it. In 1997, if the problem is growth, then, as the central banker, I will attend to it.

While inflation has plummeted this year, nominal interest rates have not fallen as fast. As a result, real interest rates are high. Can the central bank do anything about it?

If the present rate of inflation is sustainable, there is reason to believe that real interest rates are high. But if the growth rate of the economy is 6 per cent, a real interest rate of an equivalent amount is sustainable.

But, the present real rates of interest are higher than 6 per cent ...

Yes, I accept that.

How important to you is the restructuring of the RBI?

Though I would not like to use the word restructuring, the RBI's administrative structure is a matter of great importance. I think the medium-term goal of the RBI should be to make itself more efficient and more user-friendly.

So, what is your agenda as the governor of the RBI?

I have no fixed agenda. The only agenda I have is to live up to the high standards that my predecessor, Rangarajan, has set in running the bank.

Thank you, sir.