total number of loan accounts under the priority sector ; the amount involved was well over 70 per cent of total priority sector loans. even taking into account the changes in classification and coverage, bank credit to housing and consumer durables witnessed an exponential growth rate of over 50 per cent during 2001 - 2006, nearly double the growth recorded in overall non - food credit over the same period. as a consequence, the share of housing and consumer durables in overall non - food credit by scheduled commercial banks increased from around 5 per cent in 2001 to nearly 14 per cent in 2006. rapid economic growth coupled with demographic dynamics has led to a significant change in consumers ’ perceptions in our country. with a burgeoning middle - class and changing lifestyle aspirations, more and more people are resorting to debt to finance their consumption and asset creation. at some stage in some cases, this could potentially lead to excesses, precipitating defaults. such defaults could also be the fallout of circumstances beyond one ’ s control. costly medical emergencies, retrenchment from job, hardening of interest rates could inadvertently raise debt burdens in some cases not easily manageable within a given income stream. this is partly reflected in the growing number of customer complaints against banks in the recent past. over the period january 2003 to june 2005, the number of complaints relating to loans, credit cards and harassment in recovery aggregated nearly 34 per cent of total number of complaints, which reinforces the need for credit counselling in a dynamic economic environment. the proportion of people dependent on agriculture still remains high in our country. with a predominantly rain - fed agriculture, monsoonal vagaries coupled with lack of adequate risk mitigation policies could sometimes lead to hardship for the rain - dependent segment of the population. this needs to be considered in conjunction with the fact that the levels of literacy in our country are still relatively modest at 65. 4 per cent in 2001, with wide differentials between urban and rural areas. for instance, in 2001, the proportion of rural literate was about 59 per cent as compared with 80. 3 per cent in the urban areas. additionally, the organised sector employment presently comprises less than 10 per cent of the workforce, leaving the vast majority of the working population with irregular income streams and paucity of defined safety net, making them susceptible to unforeseen contingencies. this assumes even greater relevance in situations where the penetration of formal finance is less than adequate, presumably compelling people to take

end - january, 2007 i. e., at the time of formulating the third quarter review of monetary policy, these dilemmas had become sharper and more testing than ever before. taken together, global developments seemed in what could be described as a stable disequilibrium, and hence did not provide any definitive indication for a policy response. on the other hand, domestic developments seemed to dominate the outlook and clearly warranted closer scrutiny. a distinctive feature of the reserve bank ’ s communication strategy is to share its analysis with the public. accordingly, i would like to highlight the analytical aspects of our assessment of the evolving scenario and the emerging issues that will condition the monetary policy response in the period ahead. the rest of my address is organised as follows : i will attempt to set out the environment in which we reviewed monetary policy. against this backdrop, i will try to address the key issues that we had to grapple with as we fashioned the policy stance for the period ahead. i will conclude with a summary of the monetary policy stance and the measures taken in the third quarter review. the backdrop perhaps the most distinguishing feature of recent domestic developments is the pace at which economic activity is expanding. on february 7, 2007 the advance estimates of the central statistical organisation ( cso ) placed india ’ s real gdp at 9. 2 per cent in 2006 - 07 on top of 9. 0 per cent in 200506 and reaffirmed the robust optimism that has been building around india ’ s macroeconomic performance. in retrospect, it is evident that there has been a pervasive sense of the gathering momentum of growth, reflected in the direction of revisions in projections by various forecasters during the year. for instance, real gdp growth projections of the reserve bank were raised from 7. 5 - 8. 0 per cent in the annual policy statement of april, 2006 to 8. 0 per cent in the mid term review of october and further to 8. 5 - 9. 0 per cent in the third quarter review. similar revisions have also been made by various international observers and agencies. but actual growth has turned out to be ahead of all forecasts. business confidence has been rising in successive rounds of surveys conducted by various agencies and there is considerable optimism on the outlook as reflected in order books, employment and profit margins. viewed in an international perspective, the indian economy seems to be well ahead of the synchronous global economic cycle that has enabled the world economy to record four per