Rangarajan is an academic turned central banker, and his interest in monetary theory is clearly evident in every page of the book. But the lectures are far from being arid descriptions of economic theory. Rangarajan discusses live issues affecting the Indian economy, but at the same time underpins the essays with his erudition.

The volume is divided into four thematic sections --one on monetary policy issues, one on the banking and financial system, another on external policy issues, and on the state and the market.

Dr Rangarajan's liberal, some would say monetarist, views on economic policy are well known. The lectures provide the former RBI governor's answers to questions which everybody interested in monetary policy would want to know. For instance, questions such as what are the objectives of monetary policy? Is there a trade-off between growth and price stability? Is inflation a purely monetary phenomenon? What should be the relationship between fiscal and monetary policy?

The underlying basis of Rangarajan's position, of course, is that “money matters". Many of the key controversies of the subject are tackled head on. For instance, Rangarajan reacts to the criticism that there are many years in which nominal money supply measures seem to have no relation to the level of prices.

He points out that, in India, the relationship between prices and income and money supply is found to hold reasonably well over a period of time. Five-year moving averages of actual and estimated price changes derived from a price equation correspond closely.

Rangarajan reiterates his position that there is no conflict of interest between the objectives of price stability and growth. Over a period of time, growth cannot be brought about by inflation. The overriding objective of monetary policy should therefore be low inflation.

Rangarajan puts forward a cogent argument for central bank autonomy. He points out that monetary stability requires the pursuit of a consistent policy over a long time.

This is because prices react with a lag to changes in money. “Monetary expansion may initially lower unemployment or stimulate growth but, subsequently, inflationary consequences emerge and measures to reverse inflation are initiated only when inflation crosses some threshold level.

This gives an upward bias to the price level. If this is to be avoided, the pursuit of a consistent policy over time becomes necessary." The implication is that political, or short-term, influences over the conduct of monetary policy should be avoided.

The RBI chief had been widely criticised for the credit crunch of 1996, which some have argued has precipitated the current slowdown in the economy. In this volume, Rangarajan brings out facts and figures to prove that the RBI was not to blame.

Taking 1994-95 and 1995-96 together, non-food credit increased by 59 per cent. As Rangarajan says, “The hardening of interest rates towards the end of 1995-96 was not because of the tightening of monetary policy as much as the decline in resources raised by corporates from the market."

The second section takes the reader through the momentous changes which have occurred in Indian banking as a result of the implementation of prudential norms. Rangarajan says that banking sector reform has steered the development of banks in the desired direction without subjecting them to undue shocks.

He sets aside two essays on the impact of technology on the countrys banking sector. Importantly, while drawing attention to the increase in priority sector advances, Rangarajan draws attention to the necessity for involving self-help groups more closely into the credit process.

The section on external policy issues discusses the manner in which the country tackled its balance of payments crisis in 1991. The importance of placing too much reliance on volatile international capital --"fair weather friends" --is reiterated, and the importance of keeping the current account deficit under control is underlined. The importance of these warnings was later brought home forcibly in the Asian crisis.