is now widely recognised that the performance of agriculture is critical not only for output and employment but also, particularly for price stability. while over 60 per cent of the workforce is dependent on agriculture, the sector accounts for barely 20 per cent of the gdp. second, alongside shortfalls in agricultural performance, large gaps have emerged in the physical infrastructure. rapid growth in demand for infrastructure with a less than proportionate supply response in the prevailing investment climate has resulted in stretching of the capacity utilisation in electricity generation, roads, ports and major airports. third, domestic developments in 2006 - 07 in terms of firming up of inflation through the year, led mainly by rising prices of primary articles, has been a matter of concern. monetary and financial conditions are reflecting these demand - supply gaps as well as the onset of a durable pick - up in aggregate spending. the acceleration of growth in the real sector has been reflected in the upward shift in the growth trajectory of non - food credit extended by commercial banks. the expansion in non - food credit at 29. 8 per cent in the period 2003 - 04 to 2006 - 07 is unprecedented in the history of the indian economy. there has been some sign of deceleration in the recent period as growth in year on year non - food credit was 27. 2 per cent as on may 11, 2007 as compared with 32. 3 per cent during the same period last year. in consonance with the rising capital flows, the reserve money growth has been higher in the recent period averaging 17. 8 per cent during 2003 - 07. the rate of growth of reserve money was 23. 3 per cent as on may 18, 2007 on year on year basis ( 20 per cent a year ago ). similarly, the high credit growth in the recent period has led the money supply growth to remain high averaging 16. 7 per cent during 2003 - 07. during 2006 - 07, the money supply grew by 20. 7 per cent. as on may 11, 2007, the growth in money supply on year on year basis was 20. 2 per cent ( 18. 2 per cent a year ago ). taking into account the high expansion of money supply worldwide, and given the monetary overhang of 2005 - 07, it is important to contain monetary expansion in 2007 - 08 at around 17. 0 - 17. 5 per cent, in consonance with the outlook on growth and inflation. the annual policy statement for the year 2007 - 08 also placed aggregate deposits growth in

y v reddy : indian economy – review, prospects and select issues address by dr y v reddy, governor of the reserve bank of india, at the central bank of chile, santiago de chile, 7 june 2007. * * * governor corbo and friends, i am honoured by the kind invitation of governor corbo to visit the esteemed central bank of chile. we, in the reserve bank of india, deeply appreciate the gesture. governor corbo is respected for his lucid expositions on complex issues in various international fora. while his analysis of monetary policy challenges in chile is a matter of interest to the central bankers, his understanding of global developments, especially of emerging market economies is also appreciated. the performance of the chilean economy over the last 15 years has attracted international interest and is often considered to be an interesting model of structural reforms, liberalization and stabilisation. the chilean experience with management of capital inflows and temporary recourse to unique chilean type of tax on cross border capital flow is often discussed in both academic and policy circles. the visit of governor corbo to india in january 2004 was the first by a governor from latin america to visit the reserve bank of india in the recent years. the scholarly speech that he delivered on the recent developments and prospects of the chilean economy was very well received in the reserve bank. today, in my presentation, there would be a brief review of the indian economy, followed by assessment of short term and medium term prospects. i will conclude by addressing select issues in the conduct of policy in the areas of money and finance in india, as they are likely to be of interest to the audience here. i. a brief review of the indian economy india ’ s constitution adopted in 1950 had established parliamentary form of democracy and india has been a republic with universal adult suffrage, which has contributed to significant stability of political system. it is a now a federation with 28 states and seven union territories. while the largest state ( uttar pradesh ) has a population of 166 million the smallest state ( sikkim ) has a population of only 0. 54 million. there is significant diversity in religious faiths with different states having majority of population belonging to different faiths such as hindu, islamic, christian and buddhist faiths. india is a host to the largest number of practicing zoroastrians ( of ancient persia ) in the world. there are 22 languages recognised by the constitution of india as major languages spoken by a large section of society