- looking nature that is extremely useful for monetary policy. sometimes central banks will follow market movements which can provide information about the outlook that is independent of policy and that is crucial to monetary policy decisions. prices and interest rates incorporate all information available to the market, and therefore provide important signals about the future. true, there are times when the central bank may have information that is not in the public domain, but equally, many private sector institutions are privy to certain information, or may have superior information because of specialised research in a particular area. hence a two - way flow of information does exist in practice. the bank therefore takes market information very seriously and we look at a number of forwardlooking indicators. these include the forward rate agreements ( fras ), the yield curves and yield spreads, break - even inflation rates, the reuters consensus forecasts and the implied forward exchange rate curves, to name a few. we are also in the privileged position to receive a wide range of detailed in - house research from domestic and international financial institutions. these give us some indication of market expectations concerning various variables. there is a rich literature on the information content of yield curves. the generally accepted wisdom is that monetary policy determines the very short end of the curve to a significant degree. however monetary policy does not determine the long - term rates. these are determined by a number of variables, including real output growth and the market ’ s expectation of long - term inflation and expectations of the future monetary policy stance. for this reason there is not usually a close relationship between long - term bond rates and the repo rate, although the yield curve may contain useful information about the stance of monetary policy, and the market ’ s expectations of future inflation and real activity. interpreting the information contained in the yield curve or the yield spread is not always straightforward. standard theory tells us that the long - term nominal rate reflects the real rate and inflation expectations. but neither of these components is observable, and there may be other components as well such as liquidity premia which complicate the story. also, the extent to which the long - term rates react to central bank actions depend on the credibility of monetary policy. the information content of the yield curve or yield spread is therefore not always clear - cut. i am sure you all remember not too long ago chairman greenspan ’ s long - term interest rate ‘ conundrum ’ in the united states. similarly, in south africa, we were recently told that long

coverage. over 90 % of the villages still do not have bank branches. banks are today working with micro - finance institutions in many parts of the country in their quest to reach out to those who have been excluded. however, the challenge remains gigantic and would need to be provided by the mainstream lending institutions. capital formation in agriculture has started to pick up again, though the mainstream lending institutions could do more to support this process. the gross capital formation in agriculture and allied activities has increased to rs1, 38, 597 crore in 2008 – 09 from rs78, 848 crore in constant ( 2004 – 05 ) prices. this is 76 % increase that betters the 51 % increase in case of all industries. however, we still have missing growth in relation to the potential that the agriculture sector holds. india ’ s yields compare poorly in relation to world standards. india ’ s yield of foodgrains has improved only marginally over last 10 years to 1798 kgs / hectare in 2009 – 10 from 1704 kgs / hectare in 1999 – 2000 and compares poorly with global average of 4168 kgs / hectare. the yield of paddy in egypt is as high as 9731 kgs / hectare and the yield of wheat in uk is 8281 kgs / hectare. while the yields have a lot to endowments, they are also a function of our technology, investments and institutional arrangements. not all the yield gap is explained by different initial endowments. one needs a better understanding of the reasons why foodgrains yield in u. p is 56 % of that of punjab or in case of bihar it is just 42 %. in maharashtra it is just 24 % that of punjab. agri business leadership need to partner state interventions in stepping up productivity keeping in view regional conditions. only then can we generate the supply response to push agricultural growth up. improved governance leading to better delivery model over the last decade, growth theorists and development experts have realized that governance goes a long way in explaining growth. good governance refers to good order and workable arrangements that cover a wide array of institutional arrangements including regulatory and legal framework which are a must to ensure a cost - effective delivery model for the entire range of products and services. in india, we have created many institutions in this direction over the last two decades. however, we do not still compare well in terms of governance indicators. in terms of the world bank governance indicators developed by kaufman, kraay and mastruzzi, india ranked