in fact, it is uppermost in the current agenda of central banks around the world in the context of price stability and inflation expectations. i believe that the distinguished faculty and the knowledgeable students of this university would appreciate the contemporary relevance of professor ranga ’ s ideas and they will commit to play a historic role in resolving the issues that confront us today. at the outset, my hearty congratulations are due to the graduating class of 2008, who would be receiving their hard earned degrees and awards. i also compliment the staff members who have received awards and the entire faculty for their efforts in imparting high quality education and inculcating good values to shape the personalities of our young generation. it is the endeavour of the students and the staff, i understand, that helped this agricultural university in winning the icar ’ s best agricultural institute award two times in quick succession and also the icar best performance award of students in the icar all india competitive examinations twice in the last few years. dear new graduates, the reserve bank of india ( rbi ) has an important stake in the subjects that you have been trained in. our main objectives relate to maintaining price stability and aid the process of generating output and employment. agricultural prices are really critical for the household budgets of about a billion people in our country. about sixty per cent of our work force in india is dependent upon agriculture and related activities. though most policy issues in this regard fall within the domain of governments and universities like yours, the rbi has to monitor the developments and aid public policy through the financial system – especially in terms of price stability, financial stability, financial inclusion and credit delivery. in this background, while there are many issues in agriculture, i will confine to a few. i will briefly explore the serious problem of food that is confronting the world today. this is followed by a narration of the indian situation. in particular rbi ’ s approach to agriculture is described. food prices as a global issue in recent months, there has been a phenomenal increase in food prices globally. to illustrate, while the global food price index rose on average by 10. 5 per cent in calendar year 2006 and by 15. 2 per cent in 2007, it has increased by a substantial 40. 8 per cent in the first four months of 2008 compared to the corresponding period of the previous year. according to the food and agriculture organisation ( fao ), 37 countries in the world are presently facing food crisis, 31 of which are in africa and asia.

do have spillover effect on emes. for instance, persistence of low interest rates in advanced economies, by increasing the interest rate differential could push excessive capital flows to emes in search of higher returns, thus exposing these economies to the risk of reversal unrelated to their fundamentals. excessive inflows could accentuate asset prices and put upward pressure on exchange rate. given the fact that most of emes are linked with advanced economies more than ever before, they could not remain insulated from the impact of crisis originating elsewhere. excess leverage apart from perpetuating global imbalances, it is argued that the easy monetary policy pursued in advanced economies encouraged excessive leveraging on the part of investors as well as banks and financial institutions. the sharp rise in the leverage of financial institutions in the first decade of this century has been particularly striking ( chart 3 ). bis central bankers ’ speeches search for yields the low interest rates coupled with excess market liquidity led to the search for yields, which in turn promoted rapid financial innovations in terms of complex derivatives and structured finance products. consequently, the financial system got enlarged with the growth in offbalance sheet activities, and the shadow banking remained beyond the purview of regulation. during the golden years, financial economists believed that free - market economies could never go astray which is belied by the crisis ( krugman, 2009 ). the financial system, however, remained vulnerable to the risks of reversal in easy monetary policy on the one hand and disorderly unwinding of global imbalances on the other. it is argued that the “ great moderation ” carried the seeds of its own destruction. this stability bred complacency, excessive risk taking and, ultimately, instability ( minsky, 2008 ). furthermore, multilateral institutions like the imf which were charged with the responsibility of surveillance, failed in diagnosing the vulnerabilities both at the global level and at the level of systemically important advanced economies ( reddy, 2009 ). iii. impact and policy response advanced economies the crisis manifested itself first in the form of tightening of liquidity in inter - bank markets in advanced economies as banks became reluctant to lend to each other because of the fear of counterparty risks. this led to abnormal level of spreads, shortening of maturities, and contraction of some market segments. as a result, banks and other financial institutions experienced erosion in their access to funding and capital. the tightening of credit conditions coupled with extreme risk aversion