still very sluggish. this was clearly a sign of resilience in the face of a very severe shock, which, i want to re - emphasize, emanated from unfavourable conditions, both globally and domestically. bis central bankers ’ speeches i will now go on to talk about the relationship between the reform process and growth on the one hand and between boundaries and resilience on the other. reforms and growth the core premise of the reform process initiated in 1991 was that greater competition, both internal and external would help accelerate economic growth. the entire spectrum of reforms, from the abolition of industrial licensing to the sharp reduction in trade barriers and the termination of allocative controls on finance, were intended to simultaneously introduce competitive forces into the economy, while freeing up the choices that producers had in terms of what, where and how to produce. these choices, in turn, could be supported by a financial system that was allowed to make its own risk - return calculations. although some essential requirements of a truly competitive market economy, notably the elimination of exit barriers, were not introduced with the same degree of enthusiasm, the reforms that were done turned out to have a powerful impact. of course, it did not happen all at once. as the line in slide 2 indicates, the early growth dividends from the 1991 reforms were somewhat short - lived. growth accelerated to cross the seven per cent threshold during the three years from 1994 to 1997, but slumped back to a rather tepid five per cent for the five years following. this performance legitimately raised questions about the merits of the entire reform process ; if the growth dividend was going to be this small, was it worth all the institutional disruption and political challenges that it entailed? as it turned out, the acceleration in growth that took place from 2003 onwards quelled that particular debate. looking back over that period, a reasonable interpretation of events is that the reform process took long time to fall into place. trade reform, for example, manifested in a two stage transition, first from quantitative restrictions on imports to tariffs and then the lowering of tariff rates to internationally comparable levels. similarly, financial sector reforms did not fall into place all at once ; they unfolded slowly, across domestic banks, market mechanisms and liberalization of the capital account. the exchange rate regime went through some intermediate steps before current account convertibility was achieved. while industrial licensing for domestic investors was eliminated early on in the process, the policy regime for foreign direct investment also unfolded

the issue of inflation, which i raised in the context of vulnerability to global forces in the form of rising energy prices. this clearly calls for an integrated energy strategy, with the objective of both conserving overall use of energy and shifting the balance to domestic resources, preferably renewable ones. however, from a somewhat broader perspective, the continuing vulnerability to inflationary shocks from energy can also be mitigated by addressing other sources of inflation, over which there is a greater degree of control for domestic policy. in this context, i would like to emphasize the very real threat from food inflation. a growing demand - supply imbalance in some major food items – protein sources, vegetables and fruits – is helping entrench food inflation. slide 8 shows clear signs of an escalating trend. this raises the average rate of inflation, making the system even more vulnerable to external energy shocks or, for that matter, any other source of inflation. there are some direct growth - resilience implications of this pattern. it is a historical given that people diversify their diets as they become more affluent. one key common characteristic of long - term development is that the food economy has accommodated this by more efficient supply ( either through production or trade ) of the foods that people want more of. if this does not happen, households tend to spend more money on food and less on other things, which acts as a damper on the growth of demand for non - food products. as was suggested earlier, aggregate private consumption expenditure can be a stabilizing force ; the more diversified it is, the more it can contribute to stability. but, macroeconomic implications apart, from a development and welfare perspective, it is a matter of concern that increased access to better nutrition is hindered by rising food prices. rapidly expanding supply is really the only solution to this problem. second, continuing with the theme of diversification as way to promote growth with resilience, the sectoral composition of gdp and employment suggest key policy priorities. slide 9 displays a striking contrast between the drivers of gdp growth and the pattern of employment. while agriculture has been steadily shrinking in terms of its share of gdp, its share in employment remains both dominant and relatively static. in effect, a constant proportion of the labour force is generating a declining share of output. on the other hand, industry, which is expected to be a natural absorber of workers from agriculture, providing them more productive and better paying jobs, has not just about maintained its