Balancing helped us to avoid instability: Y.V. Reddy

The importance of ethics in all walks of life, common sense and the precedence of intuitive understanding over technical mastery are among the key lessons from the global financial crisis, Y. Venugopal Reddy, former Governor of the Reserve Bank of India said on Friday. Delivering the 48^th convocation address at the IIT  Madras, Mr. Reddy said the main reason why India was only marginally affected by the crisis was the importance given here to a “balance between several factors.” While the policy view in the US was that asset bubbles being difficult to define are best managed after a burst, the Indian approach is different and concerned with distributing “gains and pains” among the people if the bubble builds up and bursts, Mr. Reddy said. Putting restraints on banks extending credits or investing in housing or equity markets was the Indian way of ensuring that innocent victims were not victims of an asset bubble burst, according to Mr. Reddy, who is currently Professor Emeritus, University of Hyderabad.  “The balancing helped us to avoid financial instability and record the highest growth rates with price stability,” he said. Mr. Reddy recalled that once when asked how the RBI intervened in foreign exchange markets without basis for knowing in advance the right forex rate, he had stated: “I cannot define God. That does not mean that I cannot identify the devil…” According to him, the financial crisis also brought into focus severe weaknesses in current economic thinking and demonstrated how some learned policy makers and leaders in financial markets were lacking in intuitive understanding of the world.  “Many of them had impressive technical understanding, but in their role as leaders, they needed intuitive understanding,” he said. Mr. Reddy stressed the need to have good values on a continuing basis that determine relative weights to competing considerations, especially, between personal welfare and public interest. Citing an anecdote about a Lieutenant in the French Army being told by his General that at his level there was no difference between tactics and strategy, Mr. Reddy said the take-away lesson was that as one shoulders higher responsibilities, one needed to go beyond measurables in decision-making. Mr. Reddy told the graduands to get ready for an exciting future when India would offer plenty of attractive opportunities and surpass China as the nation that creates maximum wealth. The IIT-ian would also be the best equipped to deal with the challenge of multiple transitions ahead, he said. M.S. Ananth, IIT-M Director and chairman of the Senate, presented a report highlighting the academic, co-curricular and socially relevant activities undertaken by the IIT over the past year.  He later presented degrees to 1,385 candidates, including 245 in absentia. M.M. Sharma, Chairman, Board of Governors, urged students to consider a career in the academic world that held many rewards as the economic prosperity of a nation hinged on the output of doctorates per million of population. “We in the academia have the spiritual freedom to pursue blue sky research, innovate and yet not be affected by oppressive corporate and management pressures,” he said.

HBL