governors, two members of the committee of the central board and five specialists drawn from the areas of monetary economics, central banking, financial markets and public finance, as members. the tac meets ahead of the annual policy and the quarterly reviews of annual policy. the tac reviews macroeconomic and monetary developments and advises on the stance of monetary policy. iv. some issues in the conduct of monetary policy in india let me now discuss some issues in the conduct of monetary policy in india, in the current context. first, one of the major challenges relates to managing the transition of indian economy to high growth trajectory accompanied by a low and stable inflation and well anchored inflation expectations. there is growing evidence that the upward shift in growth trajectory in india is of enduring nature as it is supported by high saving and investment rates, improved productivity and vast potential lying by way of demographic dividend. however, it is still important for monetary policy formulation to identify the cyclical and structural components of growth achieved in recent years, despite this task being rendered somewhat difficult in an economy that is undergoing a rapid and deep structural transformation. second, a situation in which the aggregate supply is evidently less elastic domestically imposes an additional burden on monetary policy. while open trade has expanded the supply potential of several economies, significant supply in - elasticities do persist domestically, particularly due to infrastructure constraints. further, persisting impact of supply shocks on prices of commodities and services, to which headline inflation is sensitive, can therefore exert a lasting impact on inflation expectations. faced with longer - term structural bottlenecks in supply with less than adequate assurance of timely, convincing and demonstrated resolution of these issues, monetary policy needs to respond appropriately. third, some categories of interest rates are yet to be fully liberalised in the system, thereby muting at least partly, the impact of monetary policy actions on the structure of interest rates. fourth, in the indian context, it is recognized that monetary policy has to contend with large fiscal deficits and high levels of public debt by international standards. while the recent improvements in the fiscal position of states and significant consolidation in the finances of the centre provided greater manoeuvrability, monetary policy needs to closely coordinate with cash and debt management of governments in a non - disruptive manner. fifth, the operation of monetary policy has to be oriented around the predominantly public sector ownership of most of the banking system which plays a critical role in the transmission of monetary policy to the extent other public policy considerations dominate their overall operations.

of payments crisis triggered largely by the gulf war in the early 1990s. credible macroeconomic, structural and stabilization programme was undertaken in the wake of the crisis. the indian economy in later years could successfully avoid any adverse contagion impact of shocks from the east asian crisis, the russian crisis during 1997 - 98, sanction like situation in post - pokhran scenario, and border conflict during may - june 1999. seen in this context, this robust macroeconomic performance, in the face of recent oil as well as food price shocks, demonstrates the vibrancy and resilience of the indian economy. the reserve bank projects a real gdp growth at around 8. 5 per cent during 2007 - 08, barring domestic and external shocks. poverty and unemployment the sustained economic growth since the early 1990s has also been associated with noticeable reduction in poverty. the proportion of people living below the poverty line ( based on uniform recall period ) declined from 36 per cent in 1993 - 94 to 27. 8 per cent in 2004 - 05. there is also some evidence of pick - up in employment growth from 1. 57 per cent per annum ( 1993 - 94 to 1999 - 2000 ) to 2. 48 per cent ( 1999 - 2000 to 2004 - 05 ). consumption and investment demand india's growth in recent years has been mainly driven by domestic consumption, contributing on an average to almost two - thirds of the overall demand, while investment and export demand are also accelerating. almost one - half of the incremental growth in real gdp during 2006 - 07 was on account of final consumption demand, while around 42 per cent was on account of the rise in real gross fixed capital formation. the investment boom has come from the creation of fixed assets and this phenomenon has been most pronounced in the private corporate sector, although fixed investment in the public sector also picked up in this period. according to an estimate by the prime minister ’ s economic advisory council, the investment rate ( provisional ) crossed 35 per cent in 2006 - 07 from 33. 8 per cent in 2005 - 06. a reasonable degree of price stability high growth in the last four years has been accompanied by a moderation of inflation. the headline inflation rate, in terms of the wholesale price index, has declined from an average of 11. 0 per cent during 1990 - 95 to 5. 3 per cent during 1995 - 2000 and to 4. 9 per cent during 2003 - 07. the trending down of inflation has been associated with a significant reduction in inflation