summer and fall, despite further tightening of the labor market. even though the labor market heated up and labor compensation rose, measured inflation fell, owing to the appreciation of the dollar, weakness in international commodity prices, and faster productivity growth. those restraining forces were more evident in goods - price inflation, which in the cpi slowed substantially to only about ½ percent in 1997, than on service - price inflation, which moderated much less - - to around 3 percent. providers of services appeared to be more pressed by mounting strains in labor markets. hourly wages and salaries in service - producing sectors rose 4½ percent last year, up considerably from the prior year and almost 1½ percentage points faster than in goods - producing sectors. however, a significant portion of that differential, but by no means all, traced to commissions in the financial and real estate services sector related to one - off increases in transactions prices and in volumes of activity, rather than to increases in the underlying wage structure. although the nominal federal funds rate was maintained after march, the apparent drop in inflation expectations over the balance of 1997 induced some firming in the stance of monetary policy by one important measure - - the real federal funds rate, or the nominal federal funds rate less a proxy for inflation expectations. some analysts have dubbed the contribution of the reduction in inflation expectations to raising the real federal funds rate a “ passive ” tightening, in that it increased the amount of monetary policy restraint in place without an explicit vote by the fomc. while the tightening may have been passive in that sense, it was by no means inadvertent. members of the fomc took some comfort in the upward trend of the real federal funds rate over the year and the rise in the foreign exchange value of the dollar because such additional restraint was viewed as appropriate given the strength of spending and building strains on labor resources. they also recognized that in virtually all other respects financial markets remained quite accommodative and, indeed, judging by the rise in equity prices, were providing additional impetus to domestic spending. the outlook for 1998 there can be no doubt that domestic demand retained considerable momentum at the outset of this year. production and employment have been on a strong uptrend in recent months. confident households, enjoying gains in income and wealth and benefitting from the reductions in intermediate - and longer - term interest rates to date, should continue to increase their spending. firms should find financing available on relatively attractive terms to fund profitable opportunities to enhance efficiency by investing in

recourse to costly informal finance, often in conjunction with loans from banks. while the ‘ arithmetics ’ of extending credit are often diligently followed by lenders, in the absence of consistent credit histories, banks are often at a loss in case of non - repayment by borrowers. given the growing indebtedness, there is an increasing need to develop follow - up services to enable distressed borrowers overcome credit delinquencies. credit counsellor thus offers a viable task - specific, advisory ad hoc intermediary between the borrower and the bank concerned. counselling on the above lines generally serve three purposes. first, it examines ways to solve current financial problems. second, by creating awareness about the costs of misusing a credit, it improves financial management and develops realistic spending plans. third, it advises the distressed people to gain access to the structured financial system, including banking. however, such counselling will be appropriate only if it addresses unique situations of households in different parts of india. processes, costs and benefits it is technically possible for credit counselling to be ex ante or ex post. ex ante counselling helps borrowers to decide upon the quantum of loans they can avail, based on their income profile and stream of cash flows. more importantly, ex ante counselling attempts to influence the stability of the borrowers ’ flow of income and expenses, thereby lowering the probability of default. ex post counselling typically occurs after a crisis event, when the borrower has already missed one or several payments. the purpose of such counselling is to prevent default and foreclosure. it is, therefore, curative in nature. credit counselling in practice generally tends to be ex post in nature. such counselling involves oneon - one meetings, allowing the counsellor to observe the level of maintenance of the debt and other issues relevant to the stability of the borrower's situation. it includes advice on not only crisis management, and budgeting but also exploring avenues and networks that can provide succour in the interim. owing to these reasons, such counselling can be expensive, owing to the not - so - insignificant administrative costs involved. a credit counselling agency often receives most of its compensation from the creditors to whom the debt payments are distributed. this funding relationship could lead to the impression that credit counselling agencies are merely collections wings of the creditors. it is therefore essential to guard against these undesirable possibilities. in many instances