, regardless of what has driven it. the structure of the domestic economy and the financial system may have changed and the global context may be different, but the effectiveness of inflation control over the decades has not diminished. the current scenario as you well know, the predominant policy concern in the indian economy as recently as one year ago was the significant slowdown in growth in the wake of the financial crisis in the advanced economies. as slide 1 shows, the inflation rate, which was briefly negative in the middle of 2009, began to accelerate rapidly later in the year. this upward momentum continued into the first half of 2010, with double - digit inflation persisting for a few months. the rapidity of the transition was surprising, given the fact that the recovery in growth was just getting under way and, importantly, the global situation was still very uncertain. however, as slides 2 and 3 indicate, the reason for the sharp increase was that all the possible drivers of inflation were simultaneously contributing. each one by itself may not have resulted in the outcome that we saw, but all three working together resulted in a rather sharp acceleration. slide 2 displays the pattern of supply - side pressures, as manifested in the food and fuel components of the wholesale price index. food prices rose sharply because the monsoon of 2009 was deficient in most parts of the country, impacting agricultural production. however, there are, i believe, longer term forces at work on food prices, which are a matter of concern. i shall address these later on in the speech. fuel prices also rose as the prospects of a global recovery improved and, particularly, the emerging market economies actually saw a sharp acceleration in growth. however, what was most significant from the monetary policy perspective was the growing visibility of demand - side pressures. slide 3 tracks the price dynamics of the manufacturing sector – overall and without the food processing component. the latter has been used by many analysts as a reasonable proxy of demand - side inflation, which is the phenomenon that monetary policy can and should influence. both graphs in the slide and, particularly the one displaying non - food manufacturing inflation, show a tremendous acceleration from a significantly negative rate of inflation during 2009 to reach rather worrisome levels by the middle of 2010. slide 4 compares the relative contributions of the supply and demand drivers. the graph shows quite clearly that food and fuel prices, reflecting supply - side forces and the prices of manufactured goods, reflecting demand - side ones, all contributed significantly to the recent rise in inflation. if we

mention a few interesting facts here. the net profit per branch for the foreign banks in india for the year 2005 - 06 was rs. 11. 99 crore as against the corresponding figure of rs. 0. 33 crore for the public sector banks ( psbs ). further, for the year 2006 - 07, the return on assets ( roa ) of the foreign banks was 1. 65 per cent while the return on equity ( roe ) was 14. 02 per cent, as against the corresponding figures of 0. 82 per cent and 13. 62 per cent for the psbs. these returns need to be viewed in the context of the international benchmarks for these parameters, which are generally considerably lower. thus, the indian operations of the foreign banks are very remunerative and the returns are notably higher than that of their domestic counterparts as also the customary international levels. while this could be attributed, to an extent, to the level of domestic market development and lack of contestability in the indian markets, this is also, in no small measure, on account their business mix and a dominant share in the off - balance business, which is more regulatory - capital efficient, and the pattern of their branch presence, which is so far largely confined to the major cities of the country. yet another aspect of the foreign banks ’ operations is the authorisation of their branches in india. as you might be aware, as per india ’ s existing wto commitments, which came into effect from 1997 - 98, our obligation is to permit to foreign banks only 12 licences per year, including both – the new entrants and the existing banks. as per the commitment made by india, this obligation of 12 licences does not include the atms that might be permitted by the rbi. rbi has, however, consistently been granting authorisations at levels higher than our obligation, not counting the numbers of atms set up by the foreign banks. thus, during the period 2003 to october 2007, rbi had authorised as many as 75 branches of the foreign banks in india, excluding the off - site atms set up by them. thus, branch authorisation policy for the foreign banks in india may even be described as quite generous, and not merely liberal. notwithstanding the wto obligations, permitting foreign banks ’ presence in a country is in some senses also guided by the extent of reciprocity amongst the nations – which simply means that there should be some defensible proportionality in the authorisations granted