very fundamental issue of food inflation. slide 8 displays the relative contributions made by different food groups to overall food inflation. for much of the past several months, the dominant contributors to it have been pulses, milk, eggs, fish and meat and fruits. cereals have made virtually no contribution, while vegetables, with the exception of the onion spike ( other vegetables also contributed ) in late 2010, were not very significant contributors. to reiterate a point we have been making in both our policy statements and other communications : this pattern is the outcome of consumption baskets being diversified by an increasing number of households as they cross some income threshold. the increase in prices indicates that supply is just not keeping pace with demand. the only way to keep food prices in check is to produce more of what people want to consume. there are several initiatives in the union budget for 2011 – 12, which are based on this recognition. now, the emphasis must be on implementing the schemes for quick increases in productivity and output of the items in question. concluding remarks i began by raising three questions : is this high rate of inflation, previously believed to be unacceptable, now the new normal? is it an unavoidable price to pay for sustaining the current growth trend? or, will it actually work to undermine the sustainability of the current trend? based on the preceding discussion, let me attempt a combined answer. acceptance of a higher rate of inflation as the new normal – an inevitable consequence of rapid growth – will raise risks of accelerating inflation. in turn, this is likely to weaken incentives for investment, which will threaten the sustainability of growth. this is a vicious circle of high inflation, low investment and slowing growth. the alternative is the kind of virtuous circle that the economy has already experienced during the five years preceding the crisis period. this was characterized by low inflation, high investment and fiscal consolidation, particularly on the revenue account, accompanying high growth as well as resilience during the crisis period. that is the configuration that we need to re - create to sustain growth. reserve bank of india ( 2002 ), “ growth, inflation and the conduct of monetary policy ”, report on currency and finance 2000 – 01. bis central bankers ’ speeches both monetary and fiscal policies have a role in achieving this configuration. the challenge for monetary policy is to prevent supply - side inflationary pressures from spilling over into more generalized inflation, both by managing expectations and by reining in demand. this needs to be done with minimal disruption to growth

, particularly investment activity. the challenge for fiscal policy is to bring down the fiscal deficit, particularly on the revenue account. this needs to be done while ensuring both resource allocation and effective implementation of programmes dealing with critical supply constraints in food and elsewhere. significantly, both sets of challenges have to be met amidst an uncertain global environment, both generally and with respect to oil prices. i shall end with reference to the topic of today ’ s address. the issue is not so much one of higher inflation for faster growth in the present. it is about the risks that higher inflation now poses for faster growth in the future. in other words, sustainability of growth over the long term does require controlling inflation. i thank the national executive committee of ficci for inviting me to speak on this occasion and wish them success both for a successful event and a successful year ahead. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches