NBFCs ``are here to stay and helping bridge the credit gaps in several sectors, which the traditional institutions are unable to fulfil'' but lack of transparency of operations and proper financial disclosures are a major cause for worry, notes Rangarajan in a collection of essays on money and finance.

``Less than one-third NBFCs are regular in the submission of periodical returns to their designated regulatory authorities. Several companies were found to be operating with meagre capital and some even with negative networth, he says, noting several have been found issuing misleading advertisements for attracting deposits.

For healthy running of NBFCs, he suggests setting up of an appropriate legal structure to dealwith property rights, bankruptcy laws and a mechanism for enforcement of legal obligations, prudential guidelines and a surveillance mechanism which provides a safeguard against possible systematic crises.

Rangarajan, who is now governor of Andhra Pradesh, says that in the context of growing demands of states to expand activities in social sectors like health, education and medicine, they needed additional resources through the sale of public sector undertakings.

Dwelling on issues of disinvestment in public sector enterprises, he defends disinvestment because resources available for the centre and states are ``limited and needed for extending in a bigger way the social infrastructure.'' He cites the Eighth Plan, which stated that ``the public sector should make investments only in those areas where investment is mainly infrastructural in nature and where private sector participants are not likely to come forth to an adequate extent within a reasonable time perspective.'' He, however, draws adistinction between the terms ``disinvestment'' and ``privatisation''. Privatisation implies a change in ownership resulting in a change of management while disinvestment means dilution of the stake of the government to a level where there is no change in control of ownership as well as management.

``Mixed economy as a concept is well-accepted. But the mix cannot be fixed or static. It has to be dynamic, one changing with times and responding to new situations,'' he says. The former RBI governor, thus, sees the state as playing an important role in the economy and in regulating and monitoring the flow of money. Referring to inflow of foreign capital, he says, ``Capital inflows are generally welcome in a developing economy. However, sudden and large surges in capital flows do lead to several concerns.

``A major concern relates to the sustainability of such inflows. If capital inflows are volatile or temporary, the country will have to go through a whole adjustment process in both the real and financialmarkets which later will have to be reversed. This reversal will not be without loss.'' The impact of capital flows could be eased and the extent of sterilisation reduced if a tight fiscal policy is in place. In this regard, he cites the example of Thailand where the fiscal position was shifted from a deficit of four per cent of the GDP before the capital inflows to a surplus of five per cent of the GDP in the four-year period after the inflow. He also suggests quantitative restriction or some forms of taxations on the capital inflows to arrest their volatility.

On the role of the state in economic matters, he notes that ``the debate between the state and pure market is a sterile one as no serious thinker has ever disputed the role of state intervention.''