gdp + 0. 90 * in m3 * significant at 1 % corresponding error correction ( ec ) model including crude oil price and rainfall as exogenous variables is estimated as : wpi - inflation = – 0. 038 * ec + 0. 766 * growth in money supply ( – 1 ) + 0. 063 * growth in crude oil price + 0. 139 * deficit in rainfall. * significant at 10 % the error correction term is negative and the speed of adjustment coefficient for non - agricultural gdp is significant at 1 % and that of wpi at 5 % with negative signs. this implies that in the short - run changes in price cause changes in money supply which, in turn, causes changes in prices. this pattern is more pronounced when plotted against the actual inflation rates ( chart 8 ). iv. conclusions the above discussion leads to the following major conclusions. first, the new series of wpi inflation marks a major change in terms of scope and coverage of commodities and is more representative of the underlying economic structure. as per the new series, the manufactured products inflation is lower than what was seen on the basis of the old series. the food price inflation, on the other hand, is higher than what was seen on the basis of the old series. the high level of food prices is indeed a matter of concern as the prices of protein - based items, which have a higher share in the consumption basket, are showing larger increases. moreover, there is continuing shortage of food items such as pulses and edible oils. if the supply response doesn ’ t improve, there is a risk that food price inflation could acquire a structural character. second, historical data show that india is a moderate inflation country. but there have been phases of sharp spikes in inflation emanating from war, drought and commodity price shocks. supply shocks when accompanied by demand pressures further amplified inflationary pressures. but the inflation rate has reverted to its trend following policy response and improved supply conditions. in the periods of high inflation, monetary policy responded with a combination of available policy instruments through changes in policy interest rates, cash reserve ratio ( crr ), statutory liquidity ratio ( slr ), and in the earlier regime through increased in administered interest rates and credit control. third, the volatility as well as incidence and duration of double digit inflation has reduced over time. inflation control since the mid - 1990s has been particularly successful which can be attributed to wide ranging reforms which have improved the macro - policy framework and

also requires them to exercise prudent judgment and make responsible decisions. but, often, to make the regulatory expectations clear, principle - based regulations are required to be supplemented with clarifications, illustrations and guidance notes. so where do we stand in the continuum of rule - based and principle - based regulatory approach? the reserve bank, as a matter of policy, has been gradually giving banks greater operational freedom to conduct their business operations within the overarching regulatory framework. we are thus moving at a good pace towards making our regulations increasingly principle - based. maintaining a level playing field a level playing field ensures that all participants operate within a fair and consistent regulatory framework where the potential risks and rewards of the financial system are evenly balanced. there is widespread agreement that a level playing field is a key condition for a competitive financial sector. as a regulator, we are following the principle of " same activity, same risk, same regulation ". this approach can be seen in the case of our guidelines on digital lending, first loss default guarantee ( fldg ) and microfinance sector. however, maintaining a level playing field has to be counter balanced by ensuring regulations that are proportionate to the risks posed by the firm to the financial system. we are quite mindful of the need to ensure that the regulatory burden on an entity should be proportionate to the risks posed by it to the financial system and to the size of its operation. this thought has underscored our revised scale - based regulatory approach to nbfcs and revised regulatory framework for ucbs. it, however, must also be appreciated that limiting the potential for regulatory arbitrage and establishing a level playing field for market participants is an important objective for regulators, but it is not the overriding one. to ensure efficient market functioning and, more broadly, to safeguard the public interest, policymakers may, at times, need to treat different players differently. 6 / 7 bis - central bankers'speeches conclusion let me conclude. framing regulations in today's dynamic and interconnected world is a challenging task, but it is a challenge that we are fully committed to overcoming. as a regulator, our most important contribution to the society is that we do our job – by making forward looking, risk - based and proportionate regulations and implement them in a consistent manner. at the same time, we are conscious that process of regulation making must yield a net surplus for the financial system. even as we move forward on these lines, we need to