##scuring the assessment of risks, with attendant uncertainty. given the flux associated with both the financial markets and the monetary policy settings globally, india cannot be immune to these developments. the policy challenge for the reserve bank, now, is to manage the current transition to a higher growth path while containing inflationary pressures and focusing on financial stability. contextually, we in the reserve bank are, therefore, maintaining enhanced vigilance to be able to respond appropriately to the prevailing heightened uncertainties in global financial as well as monetary conditions. we expect to provide a detailed assessment of the evolving macroeconomic conditions as part of the mid - term review of the annual policy due to be released on october 30, 2007. the technical advisory committee on monetary policy is meeting on october 25, 2007, which will, as usual, provide valuable guidance for the review. iii. medium term : challenges and prospects for a large and diverse economy like india, with a low per capita income that is undergoing structural transformation in a highly uncertain global environment, challenges for public policy are manifold. i would like to focus on a few challenges that have been articulated in the latest annual report of the reserve bank of india – a document that reflects the views of the distinguished members of our board of directors on the subject. first, the recent upward trends in global prices of major food items have significant implications for the domestic agricultural sector and overall macroeconomic and financial stability. although the share of agriculture in overall gdp has declined over the years from around 38 per cent in 1980 - 81 to less than 20 per cent in 2006 - 07, agriculture continues to play an important role in the indian economy. the proportion of the population dependent upon agriculture remains large at almost 60 per cent. since the mid - 1990s, however, the growth of the agricultural sector has been low as well as volatile. volatility in agricultural production has implications not only for overall growth but also, as the experience of 2006 - 07 amply demonstrated, for maintaining low and stable inflation. thus, enhanced growth of the agricultural sector is vital for ensuring food security, poverty alleviation, price stability, overall inclusive growth and sustainability of growth of the overall economy. in view of significant weather and price risks, appropriate risk mitigation policies would need to be put in place to provide relief to distressed farmers as well as enhance the efficiency of production. in view of small and fragmented farm holdings, the population dependent upon agricultural activity will have to increasingly rely on non - farm sources of income in

y v reddy : some perspectives on the indian economy address by dr y v reddy, governor of the reserve bank of india, at the peterson institute for international economics, washington dc, 17 october 2007. * * * mr. chairman and friends, i am greatly honored by the invitation extended to me by the peterson institute for international economics to share some of my thoughts on the indian economy. this meeting is reflective of the recently observed growing interest and confidence in the status and future of the indian economy. today, i intend to submit that, since independence in 1947, the indian economy has been on the whole, on a path of gradually self - accelerating development accompanied by reasonable stability. there has been a noticeable acceleration in the level of confidence and the performance of the indian economy in the 21st century. the short - term prospects, despite recent global uncertainties, continue to be, by and large, benign for india. over the medium - term, there are several challenges and opportunities. the public policy may, therefore, have to specially focus on these aspects in order to meet not only the expectations of the global community, but also, and more importantly, the aspirations of millions of people in india, particularly the poor and the underprivileged from diverse backgrounds. i. self - accelerating growth since independence and in the new millennium before independence, during the first five decades of the 20th century ( 1900 - 01 to 1946 - 47 ), the annual average growth performance of the indian economy was dismal, averaging 0. 9 per cent. since the beginning of the planned development process in the early 1950s, the gdp growth displayed a self - accelerating tendency reaching a level of around 6. 0 per cent in the 1990s. two exceptions during this phase were the dipping of the growth rate in the 1970s to 2. 9 per cent and during the crisis year of 1991 - 92 1 when the growth was as low as 1. 4 per cent. the record of inflation in india has been satisfactory. since independence, the wholesale price inflation, on an average basis, was above 15 per cent in five out of fifty years. in thirty six years, out of fifty, inflation was in single digit and on most occasions high inflation was due to external and domestic shocks such as sharp rise in fuel and food prices. in the new millennium, the gdp growth rate has accelerated further averaging 6. 9 per cent during the seven - year period 2000 - 01 to 2006 - 07, while the growth rate in the last four