a successful communication of their economic benefits to the general public is crucial for raising consumer confidence and, ultimately, growth and employment. we are aware of the fact that structural reforms normally take time to show up in improved economic outcomes, which often makes it politically difficult to implement such reforms. against this background we very much welcome the positive steps undertaken over recent months by several governments and parliaments in the euro area and we strongly encourage them to continue and intensify these efforts. issues related to euro banknotes let me now highlight a few issues related to the experience with euro banknotes during the first couple of years. since the introduction of the euro banknotes and coins on 1 january 2002, circulation has steadily increased. indeed, by end - august 2004 some 9 billion banknotes with a value of eur 460 billion were in circulation, an increase of 10 % in terms of volume and 18 % in terms of value compared with circulation one year earlier. as regards the quality of banknotes, the eurosystem closely monitors the banknotes in circulation and takes the appropriate measures to refresh the cash cycle, when needed. at the same time, the ecb is currently examining ways to enhance the durability of banknotes. moreover, to avoid shortages of certain denominations within the euro area which may occur in the event of strong cross - border flows of banknotes, the eurosystem has set up a cross - euro area stock management scheme. this system greatly enhances efficiency in the use of banknote stocks, since shortages in one country can be compensated for by excess stocks in another country. turning to the issue of combating counterfeiting, the rate of counterfeiting has been relatively stable during the past 12 months, with around 50, 000 to 55, 000 counterfeit banknotes per month withdrawn from circulation. assessing this number against the number of genuine banknotes in circulation ( approximately 9 billion ), the population of the euro area countries ( more than 300 million ) and the number of cash transactions involving banknotes ( estimated to be approximately 120 billion per year ), the initial years of experience with euro banknotes have proven that european citizens can remain confident in the security of their money. that being said, to improve even more the efficiency of the fight against counterfeiting, the eurosystem has recently issued updated communication material on the security features, which should help cash users to spot counterfeits. however, there is no room for any complacency. cooperation in this

the global economic outlook deteriorated sharply, and the indian economy got impacted by the contagion through all the channels – the financial channel, the real channel and the confidence channel. the reserve bank ’ s crisis response included, like in the case of other central banks, both conventional and unconventional measures. in response to the easing of policy interest rates and abundant liquidity made available, market rates eased significantly. yields on 10 - year central government securities fell from 8. 6 per cent at end - september 2008 to 5. 3 per cent by end - december 2008. this trend has since reversed with yields hardening since the beginning of the current calendar year on the back of large and abrupt increase in the government borrowing programme. in contrast, interest rates on bank deposits and loans have exhibited stickiness. while the reserve bank cut the effective policy rate by 575 basis points, banks ’ benchmark prime lending rates ( bplrs ) have seen a reduction of only 100 - 275 basis points. this stickiness has impeded monetary transmission and blunted the intended impact of policy actions. what is the explanation for the stickiness in the interest rate structure of banks? there are several factors that cause this stickiness – the higher rates of interest offered by the small savings instruments which discourage banks from reducing deposit rates, the high cost of deposits raised by banks during earlier tighter monetary policy regime which raised their weighted average costs, and the large government borrowing programme which pushed up yields on government securities. these factors, which impeded monetary transmission, were in play even before the crisis. a definite task going forward will be to address the impediments to monetary transmission. fourth concern : fiscal stimulus – withdrawal and quality of adjustment like in other economies, fiscal stimulus measures and weakening of economic activity have led to substantial increase in our fiscal deficits. the central government ’ s fiscal deficit is budgeted to jump from 2. 7 per cent of gdp in 2007 - 08 to 6. 8 per cent in 2009 - 10 ; the combined fiscal deficit of the centre and the states is expected to increase from 4. 2 per cent of gdp to 10. 2 per cent over the same period. these deficits are large and need to be rolled back. what is the scope for adjustment? what lesson does our past experience offer? as a result of the discipline imposed by the fiscal responsibility and budget management ( frbm ) act, the centre ’ s fiscal deficit came down from 6. 2 per cent of gdp in 2001 - 02