countries. 1 this upward trajectory continued, and even accelerated in some cases, in the subsequent period. then the crisis occurred, and the chinese economy slowed abruptly. but the authorities responded forcefully and china ’ s economy returned to very strong growth quite quickly. and so the trends in place up to the middle of 2008 had resumed within a year. the rapid growth in chinese, indian and other emerging world demand has been stimulating demand in the global economy, despite the weakness in demand from the “ north atlantic ” group of countries. this gives a boost to a country like australia : our economy ’ s increased exposure to asia – the part of the world where much of the growth is occurring – plus the high terms of trade make for an expansionary macroeconomic event. at present australia ’ s at that time, my predecessor noted that structural factors such as the industrialisation of china had led to “ the largest cumulative increase in our terms of trade since the early 1970s ”. see macfarlane ij, “ opening statement to the house of representatives standing committee on economics, finance and public administration ”, canberra, 17 february 2006. bis central bankers ’ speeches terms of trade are about 85 per cent above their 20th century average. the amount of additional income accruing to production in australia from that is 15 per cent or more of annual gdp. even allowing for the fact that a substantial fraction of this income accrues to foreign investors that own large stakes in many of australia ’ s resources companies, this represents a very large boost to national income. these expansionary forces are at work on an australian economy that was widely regarded as very fully employed by early 2008, and that experienced only a fairly mild and short downturn thereafter. as of today, measures of capacity utilisation are not as high as at the end of 2007, and unemployment is not as low as it was then. nonetheless, the degree of slack in the economy overall does not seem large in comparison with the apparent size of the expansion in resources sector income and investment now under way. with that general outlook, it follows that macroeconomic policies must be configured in the expectation that there will need to be some degree of restraint. monetary policy has already been exerting some restraint for a while. looking ahead, our most recent analysis ( as published in early may ) concluded that the underlying rate of inflation is more likely to rise than fall over the next couple of years. this central expectation – subject to all the usual uncertainties inherent in forecasting

of employment generation in the rural sector and enable these sectors to emerge as the main source of growth and employment in rural areas. all these measures will promote competitiveness of the agricultural sector, which is so necessary in the current global context. as regards social sector indicators, notwithstanding some progress in regard to education and health, india is still far behind its east asian neighbours. our social indicators are lower even in comparison with the levels achieved by these countries twenty five years ago, when they first began to grow rapidly. the social indicators also show disturbing gender gaps, large rural - urban differences and wide variation across states. although the literacy rate has improved encouragingly from 52. 2 per cent in 1991 to 64. 8 per cent in 2001 and the overall number of illiterates in the country declined from 329 million in 1991 to 306 million in 2001, there are at least seven major states with more than 15 million illiterates each, accounting for nearly two - third of total illiterates in the country. concomitantly, given india ’ s comparative advantage in services, it is important that the quality of secondary and higher education in the country is improved so that adequate skills are developed to realize the benefits of the knowledge economy. as regards health, the combined government ( centre plus states ) expenditure on health as a percentage of gdp has stagnated at around one per cent of gdp over the last decade and a half. total public expenditure on health in india remains even lower than many other developing countries such as brazil ( 3. 4 per cent ), thailand ( 2. 1 per cent ), sri lanka ( 1. 8 per cent ), china ( 1. 9 per cent ) and malaysia ( 1. 5 per cent ). low public expenditure in india is to some extent compensated by private expenditure which at 4. 0 per cent of gdp is comparatively higher than all of these countries except brazil ( 4. 9 per cent ). however, low public expenditure is a cause for concern for the vast majority of the population and primary health care remains of poor quality, unavailable and inaccessible. the infant mortality rate in india is almost double that of china ( 63 in india versus 37 in china ) while the maternal mortality rate at 407 is manifold as compared to china ’ s 56. hospital beds ( per 1000 population ) at 0. 7 for india are less than one - half of other developing economies such as china ( 2. 4 ), thailand ( 2. 0 ) and malaysia ( 2. 0 )