credit with respect to output with an upward shift since the end of the 1990s. faster credit growth is also a reflection of the wider dispersal across the economy. viewed in a holistic perspective, it is difficult to arrive at a clear judgment as to what rate of credit growth is too high in relation to potential growth. in the presence of the kind of structural changes that i have described above, even when the macro availability of resources is adequate to fund the increase in demand arising from both consumption and investment, there could be micro imbalances that lead to observation of excess demand and overheating. it is in this context that monetary management has to also look at imbalances that could be transitional. the challenge before us at the present time is to manage the transition to a higher growth path, in the presence of some structural rigidities, in such a way that actual inflation and inflation expectations are contained and do not become mutually reinforcing. our assessment is that while expansion of capacity is underway, the realisation, particularly in sectors like infrastructure could be constrained over the next two years. indeed, the difficulties with improving the supply response are more complex and challenging than aggregate demand management. supply management will need to encompass wide areas including labour markets, land laws and the content of regulation in each sector. as long as supply responses are less than elastic, they could show up as excess demand, causing inflationary pressures and raising inflation expectations. to reiterate, managing structural change while keeping inflation low without dampening the growth momentum is the quintessential challenge to monetary policy in the period ahead. illustratively, given the growth in consumption demand, rising incomes and high growth in sectors such as information technology ( it ), it is not surprising that there is a huge actual demand for housing, retail activity and office space from the burgeoning services sector. it is also not surprising that there would be associated problems on the supply side including availability of land, zoning and other land regulations, and social concerns about the conversion of land from agricultural purposes to other uses. therefore, monetary policy has to be creative in addressing these problems in a non - disruptive manner. it is in this context that prudential and other measures such as provisioning and risk weights on bank loans to specific sectors are being used so as to enhance the sensitivity to risks emanating from these sectors rather than standard monetary policy responses that address aggregate demand. the task before monetary policy is thus rendered complex, requiring that

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