##trillion dollar ( and not a one trillion dollar ) economy! although some argue that india catapulted to the trillion dollar league in 2007 on account of gdp valuation based on sharply appreciated exchange rate that resulted from huge inflows of foreign exchange, most others consider this as an emerging sign of take - off that could accelerate the growth momentum going forward. last year, economists at morgan stanley and other long - range forecasters predicted that india ’ s growth will start to outpace china ’ s within three to five years and continue at a faster rate than any other large country over the next 20 to 25 years. hence, i believe, and others do so too, that the indian economy is set to experience double digit growth during the coming two to three decades. while the future growth outlook of the indian economy looks promising, the challenge is to make it more inclusive. at the grassroots level, india continues to be a poor and less developed country in spite of years of financial and other support provided by the government to equity enhancing distributional programmes and the spectacular turnaround in investment and growth. according to a planning commission report on the methodology of estimation of poverty issued in 2009, the all india poverty head count ratio was at 37. 2 per cent in 2004 – 05 compared to 45. 3 per cent in 1993 – 94. prima facie, while the slow pace of reduction in poverty due to high population growth rate, large workforce still dependent on agriculture and illiteracy continue to obstruct the growth potential, the paradigm that these disabilities can be nevertheless be turned around into a winning proposition is also surely within the realm of possibility. in fact, many of the disadvantages which the indian economy faced in the past has already been waned and turned out to be advantages. to illustrate, a disadvantage that has plagued bis central bankers ’ speeches most developing economies including india has been that of scarcity of capital. this scarcity has hindered the investment and growth prospects of these economies in the past. this, however, is no longer a disadvantage. with most countries including india opening their doors to foreign investment, the question is no longer of scarcity of capital but the rate of return that we can pay on this capital. hence, capital is no longer a constraint in the era of liberalization and globalization if we are able to pay the required return and are able to attract the capital flows into our economies especially in the form of foreign direct investment. further, high population growth was another

bond yields. in practice, due to uncertainty about the future evolution of short - term interest rates and due to time - varying risk premiums, the longer the maturity, the weaker the link between current short - term rates and long - term rates. therefore, in practice, a central bank would often find it difficult to guide longer - term interest rates to a level commensurate with what it considers to be the optimal monetary policy stance. assuming a flexible exchange rate regime, the exchange rate is arguably the quickest transmission channel for monetary policy, particularly in open economies. exchange rate movements rapidly affect prices ( via import prices ) and subsequently demand ( by boosting imports and slowing down exports, or vice versa ). in theory, monetary policy impacts exchange rates via the yield curve and from there via interest rate parity relations. to be more precise, it is the yield curve of both the home and the foreign country, and thus the monetary policies of both the home and the foreign country which affect the exchange rate between two currencies. in practice, exchange rate movements often deviate significantly from what interest rate differentials would suggest. in light of the practical uncertainties about the effects of monetary policy on exchange rates, the exchange rate transmission channel for monetary policy is also not easily exploitable. other assets apart from bonds and exchange rates, monetary policy also affects the stock market. the relationship between monetary policy and stock prices is complex, because stocks are influenced by monetary policy through several channels. first, if stocks are priced using the dividend discount model, then monetary policy affects stock prices via the interest rate which is used to discount future dividends. interest rates may also affect the value of domestic assets of a company, and the exchange rate affects the value of its foreign assets and foreign profits. in addition, monetary policy influences the financing cost of a company as well as the availability of loans. moreover, the medium - term effects of monetary policy on the real economy can influence a firm's profits. monetary policy can also affect commodity prices. expansionary or restrictive monetary policy supports or weakens real activity in the medium run and can thus influence the demand and the price for commodities. obviously, this dynamic can only occur in economies large enough to impact the global demand for commodities. in addition, monetary policy can affect some commodities to the extent that their prices may reflect a change in inflation expectations. last, but not least, monetary policy affects housing prices. in general, the transmission from monetary policy