an extended time period, supply induced inflation tends to get generalised. this is a lesson learnt in macroeconomics following the oil price shock of the early 1970s which triggered a world - wide inflation. hence, policy authorities were wiser in handling subsequent supply shocks by not extending policy accommodation beyond a point. fiscal deficit was a major factor in the determination of inflation in the 1980s. with fiscal consolidation after the mid1990s, monetary growth became more commensurate with the overall economic growth contributing to reduction in inflation ( chart 6 ). against this background, let me now turn to a simple but more formal assessment of the determinants of long - term inflation which can be considered as output and money supply. since agricultural gdp is frequently interrupted by weather conditions, non - agricultural gdp and money supply can be considered as the more relevant variables in the determination of the inflation trend. empirical exercise based on annual data for the 57 year period, 1952 – 53 to 2009 – 10, shows that there is a co - integrating long - term equilibrium relationship among inflation, non - agricultural gdp and money supply. 1 from this exercise, the following inference can be drawn. first, non - agricultural gdp has a highly significant and negative relationship with inflation, which implies that an increase in non - agricultural gdp representing improved supply condition will decrease inflation. second, money supply has a highly significant and positive relationship with inflation. one per cent increase in money supply in absence of any increase in non - agricultural gdp could lead to 0. 9 per cent increase in inflation. third, alongside increase in money supply by one percent, if non - agricultural gdp also increases by one per cent it will have a dampening effect on inflation. but still inflation could go up by 0. 15 per cent in the long - run. fourth, deviation from the long - run equilibrium is statistically significant and the adjustment towards the long - run equilibrium is faster through changes in the non - agricultural gdp. 2 fifth, there is a two way causal relationship between money supply and prices. 3 notwithstanding this relationship, inflation has strayed from its long - term path from time to time. the upward spikes in inflation from its trend are explained by significant supply shocks. generally, high inflation periods were coincident with episodes of oil price surge and drought conditions. this can be seen from the plot of residual from the long - term equation ( chart 7 ). in wpi = 6. 15 – 0. 75 * in non - agri -

some of the areas, but has not been able to adequately address these specific challenges. for instance, transaction costs of financial services to the poor are much larger in comparison to their revenue generation potential in the short term. from the demand side too, there is financial illiteracy and the consequent fear of approaching formal institutions. with this huge chunk of our populace being deprived of basic economic facilitators, or alternatively seen, with this huge resource base remaining untapped, it would not be feasible to achieve our growth potential. technology has the potential to influence financial inclusion in a big way and help resolve many of the above problems. the use of technology in extending banking outreach is an area of contemporary focus in india. thanks to the versatility of information technology, innovation is giving us the hope that new business models like banking correspondents ( bcs ), innovative payment devices, unique identification number allocation etc. will enable us to achieve financial inclusion, while addressing some of the cost and beneficiary identification issues. ultimately, the objective is to lower the operating costs through technological innovations whereby, financial inclusion becomes a profitable business. this will result in a huge upside to the bank in the form of stable deposits. financial inclusion would be a catalyst to growth and would also contribute indirectly to financial stability. we hope that the initiatives in this space, encouraged by government as well as reserve bank, shall get enthusiastic support from the banking fraternity and help us achieve the dream of inclusive growth, which can catapult india into the next orbit of development in the foreseeable future. wings of change – mobile banking over the last few years, the mobile and wireless market has been one of the fastest growing in the world. mobile phones have become an essential as well as conveniently available communication tool for almost every individual. using this technology for funds transfers as well as retail payments holds a huge potential. as such, mobile banking is the most happening area of development in the banking sector and is expected to complement, and to an extent replace, the credit / debit card system in future. while it has the potential to overcome issues relating to cost, infrastructure and resources ; it does pose some new issues of its own. the main amongst these pertain to the dependence on service providers, network availability and security. it would also require deep appreciation of management aspects which relate not only to appropriate technology deployment and performance at backend but also to issues such as front end contact with the customer to provide necessary confidence