the reach of rural banking, seem to be less than expected. perhaps it is time we ask ourselves some questions. first have our strategies, in terms of institutions and strategic directions, been flawed all along? have we run out of ideas in this regard? is our thinking on rural credit has fallen behind the emerging realities in the economy? is there a need for distinguishing between the cause and the effect as also between the symptom and the disease? is it lack of credit availability or want of commercial viability of agriculture that is constraining the credit - flow, or is it a complex combination of both? while we may not be able to answer many of these questions satisfactorily, i submit that we need to keep asking these right questions. new policy directions answers to some of the complex questions relating rural credit may be found in the most recent policy directions. the national development council approved a week ago " an approach to the 11th five year plan " which contains extensive references to the future policy directions. some extracts from the document may be in order. on objectives and challenges " one of the major challenges of the 11th plan will be to reverse the deceleration in agricultural growth from 3. 2 % observed between 1980 and 1996 - 97 to a trend average of around 2. 0 % subsequently ". " to reverse this tend, corrective policies must not only focus on the small and marginal farmers who continue to deserve special attention, but also on middle and large farmers who suffer from productivity stagnation arising from a variety of constraints ". " a second green revolution is urgently needed to raise the growth rate of agricultural gdp to around 4 % ". on financing development " the 11th plan must ensure that our policies are sufficiently flexible to support the development of micro finance. interest rates in the micro finance sector have to be significantly higher than in the banking sector reflecting the much higher cost of doing business. it is important to remember that most micro - finance institutions charge rates which are much lower than rates charged by money lenders ". on agriculture sector policy " the failure of the organised credit system in extending credit has led to excessive dependence on informal sources usually at exorbitant interest rates. this is at the root of farmer distress reflected in excessive indebtedness ". " there is evidence that farm debt is increasing much faster than farm incomes and the larger issue of the overhanging debt stock, as distinct from credit flow, has not even been on the agenda except of a

easing policy. specifically, the bank specified two conditions. first, the year - on - year rate of increase in the core cpi must register zero percent or above over a few months. second, the prospective year - on - year rate of increase in the cpi must not be zero percent or below. these two conditions, as necessary conditions for terminating the policy, constitute a firm commitment : in other words, the bank commits itself to continuing the policy until they are fulfilled. at the same time, the bank made it clear that these two conditions are not sufficient conditions in the sense that the bank will not necessarily make an automatic decision to terminate the policy as soon as they are fulfilled. to put it in a nutshell, the bank will decide whether to terminate the policy by examining developments in economic activity and prices and judging whether the situation justifies asserting that the year - on - year rate of change in the cpi is registering zero percent or higher on a sustainable basis - - in other words, whether the commitment has effectively been fulfilled as a whole. of course, the timing of terminating the quantitative easing policy crucially depends on developments in economic activity and prices. based on the projections regarding economic 3 / 4 activity and prices mentioned earlier, the probability of terminating the policy is likely to gradually increase over the course of fiscal 2006. at that juncture, the bank will shift the operating target for money market operations back to short - term interest rates from the outstanding balance of current accounts at the bank. since, as i pointed out earlier, the quantitative easing policy is effectively becoming closer to a maintenance of zero interest rates, a change in the policy framework itself does not imply an abrupt change in monetary policy. although the future course of monetary policy obviously depends on developments in economic activity and prices, an accommodative financial environment is likely to be maintained, as long as upward pressures on prices continue to be to a large extent contained and the economy follows a sustainable and balanced growth path, as projected in the april 2005 outlook for economic activity and prices. conclusion the japanese economy has emerged from a pause and continues to recover, albeit at a moderate pace. the bank is determined to carry out monetary policy so as to support private - sector initiatives, and thereby realize sustainable economic growth and stable prices. 4 / 4