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.

, it is argued that increases in energy costs are resulting in cost push inflation but contribution of energy costs to overall costs in agriculture may not explain the huge increase in food - prices. fourth, related to the current elevated energy prices, there has been diversion of corn and edible oils to bio - fuels, which are significantly influenced by policy mandates. very clearly this diversion to bio - fuel is a policy induced new reality which coincided with price escalation in precisely those products and hence, is noteworthy. fifth, the financialisation of commodity trade and current extraordinary conditions in global financial markets could have influenced the spurt in prices. the recent reductions in interest rates in the u. s. and the injection of liquidity have resulted in investors seeking new avenues such as commodity markets, in view of the turbulence in financial markets and the low returns in treasuries. the relatively easy liquidity and low interest rates, by themselves, make holding of inventories attractive and thus induce greater volatility to commodity markets. the weakening of the u. s. dollar is also advanced as a reason for the recent volatility in commodity markets, including food items. it is evident that this phenomenon is also now coinciding with the across - the - board rise in food prices. in brief, while there are demand and supply side pressures on food items, there is considerable merit in the arguments that recent extraordinary increases in food prices are closely linked to the public policy responses to high energy costs in advanced economies, and the turbulence in financial markets and financial institutions. it is said that the impact of such policy induced diversion of food to bio - fuels is significant at this juncture and reflects a preference to fill the fuel tanks of automobiles rather than fill the empty stomachs of people. similarly, it is sometimes held that the weight accorded to financial stability in public policy may now be at the expense of stability in real sector – especially of sensitive commodities like food. at the same time, there is a general consensus that public policies in regard to food in many economies around the world have not provided adequate incentives to farmers to increase the supply of food and other agricultural products to comfortably match the growing demand over the medium term. as regards prospects for the near future, there are severe imponderables, especially relating to the path of future prices of oil ; progress in restoration of normalcy in financial markets, especially currency markets ; and the extent of slow down in the u. s. economy and its consequent