Business leaders must focus on fixing financial system, prevent volatility in market, says C Rangarajan, Ex-RBI Governor

He was addressing the 43rd Annual Convocation of the Indian Institute of Foreign Trade (IIFT), New Delhi on April 13, 2009.While speaking on the current economic downturn, Dr Rangarajan said, The global financial crisis has assumed panic proportions. It originated in the sub-prime mortgage crisis which surfaced last year in the United States. The severity of the crisis in the developed world has taken everyone by surprise including the regulators. The market regulators failed to see the impact of the derivative products which clouded the weaknesses of the underlying transactions. The second issue relates to leveraging. The institutes that have fallen into trouble are those which are highly leveraged. So the extent of leverage is an issue to which regulators and policy-makers have to pay attention, if financial stability is to be regained. Commenting on the impact of the economic slump on the Indias domestic financial system, Dr Rangarajan added, The heat is being felt by the developing countries including India. The impact is both direct and indirect. The direct impact comes from the exposure to the toxic or distressed assets by the Indian banks and other financial institutions. This was expected to be minimal. Indian banks, in general, have very little exposure to the asset markets of the developed world. Indian banks have very few branches abroad. The indirect impact is through trade and capital flows. Though the initial impact of the financial crisis was limited to the stock market and the foreign exchange market, later on it spread to the rest of the financial system and impacted the overall structure of the economy.I strongly feel that major modern developments around the corporate world need several dimensions of expertise and knowledge. The ongoing crisis has provided us a new opportunity to shed isolation, play a bigger role in the world. Our fate in this context will in turn depend on the quality of human resources available in the country. The business leaders of this generation will have to play an effective role to overcome current slump. The elements which make principles of management need to be brought into address; and the ongoing problems call for insightful approach by experts from different disciplines, concluded Dr Rangarajan.