mainly through the instrument of 91 - day treasury bills including ad hoc treasury bills. the figures of 1997 - 98 under market borrowings would include borrowings through 91 - day ( auction ) treasury bills. therefore, the comparable figures would be rs. 32, 398 crore for 1996 - 97 [ ( rs. 25, 498 crore of net market borrowing plus rs. 6, 900 crore of the budget deficit ( re ) ] and rs. 33, 820 crore for 1997 - 98 ( total net market borrowing ), implying an increase of only 4. 4 per cent. 21. some others have argued that, at 16 per cent, the growth in the money supply would imply an inflation of 10 per cent if gdp grows at 6 per cent. the money supply growth indicated here is in terms of broad money and not narrow money. the income elasticity of demand for broad money which has been proven to be reasonably stable and is in the range of 1. 5 to 1. 6 in india should be taken into account. even accepting that growth in gdp will be no more than 6 per cent, the implied inflation could be only between 7. 0 per cent ( 16. 0 - 9. 0 ) and 6. 4 per cent ( 16. 0 - 9. 6 ). outlook 22. let me conclude with the outlook for the successful implementation of the new system. first, let us recognise that what we are doing is really adhering to what the first five year plan visualised, viz. judicious credit creation. second, we are trying to operationalise the monetary targeting that prof. sukhamoy chakravarthy's committee wanted us to. no doubt, we have to move to indirect instruments of monetary policy, but we cannot escape some sort of effective monetary targeting. third, a process of thinking initiated by dr. rangarajan in 1988, further elaborated by him into a proposal in the kutty memorial lecture on “ autonomy of central banks ” in september 1993, and formalised through an agreement between him as governor and prof. manmohan singh as finance minister has been honoured by our present finance minister shri p. chidambaram. we therefore have reason to believe that there is a consensus on the new system. fourthly, the critics have not questioned the need for closer fiscal monetary interaction or a more autonomous monetary policy. if at all, the critics want to make sure that the new system works effectively towards its objectives. finally, what has been

policy in new zealand. 9 provided that sufficient flexibility is allowed to accommodate the frequent and often severe impact of external shocks, the most important contribution monetary policy can make to promoting efficiency and the longrun growth of incomes, output and employment is the pursuit of price stability. this also remains the view of the 30 or so central banks that describe themselves as inflation targeters, and includes most central banks in the advanced economies and several emerging market economies. i am not aware of any central bank that has moved away from an inflation targeting framework since the gfc. for example, no country has adopted price level targeting or targeted nominal income given the practical difficulties and theoretical challenges to those frameworks. however, several central banks, like the rbnz, have expressed concerns that the unprecedented monetary accommodation in the aftermath of the gfc has led to excessively inflated asset prices. many countries have introduced macro - prudential policies to help alleviate the risks this poses to domestic financial stability. the average annual percentage change ( in nz dollar terms ) in goods and services import prices was 2 percent in the period 2005 – 2007 and – 1. 9 percent in the period 2012 – 2016 q1. several rbnz speeches discuss the merits of flexible inflation targeting. for example, mcdermott j ( 2012 ) “ the future of inflation targeting ” ( 2015 ) “ the dragon slain? near - zero inflation in new zealand ”, wheeler g “ reflections on 25 years of inflation targeting ” ( 2015 ) “ some thoughts on the inflation outlook and monetary policy ”. bis central bankers ’ speeches there have been assertions that inflation targeting is broken because inflation is low. these assertions do not stack up. inflation has primarily been low because of unforeseen and unforeseeable global events. monetary policy in new zealand remains effective and able to influence domestic demand, and thus, non - tradable inflation. while there is some academic debate about the merits of different inflation targets, few, if any, central banks have modified their inflation targets in the last few years. although there is nothing sacrosanct about what particular inflation band or target should be adopted as a measure of price stability, central banks have been reluctant to change targets. this is usually because the prospect of “ making it easier when times become tougher ” reduces the incentives on central banks to achieve earlier agreed goals and, in doing so, could damage the central bank ’ s credibility ( particularly if a perception develops that the central bank will continually seek to res