In 1991, I had written a book on India's economic crisis. It was a modest attempt to look at the causes and origins of the crisis in a somewhat longer-term perspective. Since then, a lot has happened politically and economically, both at home and abroad. The crisis of 1991 is long over. India has adopted a wide-ranging programme of economic reforms. Other developing countries-in Asia, Africa and Latin America-are also struggling to redefine their development strategies and to respond to the new realities in trade and investment. The collapse of the former Soviet Union and the emergence of a large number of independent states in Central Asia and Europe are reshaping the political map of the world.

Against this background, I thought it would be useful to revisit some of the economic policy challenges before India in the years ahead. This book is the result. As I looked deeper into our own recent experience and that of other countries, two things became clear to me. First, as is well known, global changes in technology, trade and investment in the last decade have been dramatic. What came as a bit of a surprise was that, contrary to a prevailing view in India, many of these changes were favourable to developing countries. In particular, these provided immense new opportunities for countries like India, which had a relatively mature technological and industrial base. Second, in order to benefit fully from these opportunities, it was necessary to get rid of the dead-weight of the past. Despite the passage of time, the haunted memories of our colonial past seemed, in some hidden way, to cloud our vision and shape the contours of the contemporary debate on economic policy.

This book is aimed at the general reader. I shall be particularly pleased if our policy makers, legislators, opinion makers and young students in universities (who after all have a bigger stake in the twenty-first century!) find something of interest in this book. While it has not been possible to avoid the use of jargon completely, I have tried to make the text accessible to non-economists. References have been kept to the minimum necessary, and statistics have been used selectively.

PREFACE TO THE PAPERBACK EDITION

This book was first published in August 1996. The period since then has seen yet another change of government in India. There have also been some significant changes in the world political and economic environment. From an economic point of view, the most important development is perhaps the turmoil in currency and stock markets, particularly in the East Asian economics. In recent weeks, the Indian economy has also been affected. The question naturally arises whether the main thrust of this book or its conclusions regarding the future direction of the Indian economy requires to be reconsidered.

In my view, recent developments have in fact reinforced, rather than weakened, the analysis and conclusions of this book. For example, the need for 'fiscal empowerment' of the government at the Centre and in the states, through public sector reform and expenditure control, is even more urgent than a year ago. The proposal to put a constitutional limit on government's revenue deficits has now become a matter of national debate. The recent volatility in foreign exchange and capital markets, two years after the Mexican crisis, has further underlined the need to adopt a coherent medium-term policy towards short-term financial flows. Acceleration of India's growth rate to 7-8 per cent continues to be an essential objective for India to take its rightful place in the world economy. It is a necessary condition for alleviation of poverty and for providing the state with resources to make a major thrust in the social sectors, particularly health and education for all.

Despite political uncertainties and some anxiety about the shape of our polity, I remain highly optimistic about our future. India has the talent, the skills, and entrepreneurial resources to become a major economic power in the first half of the twenty-first century. The new opportunities for India, particularly for our young, are truly immense. Fifty years after our independence, I hope that at least some of what is said in this book will help in devising policies that enable India to realise its true potential.

Review - Reproduced from the book's back page

A lucid and brilliantly-argued book on India's recent economic reforms

Nearly fifty years after Independence, India remains a very poor country. It ranks near the bottom in terms of per capita income, and is similarly placed in the Human Development Index which, measures social well-being. Economic growth in India has been less than half that of China or even other countries in Asia. And governments, at the Centre as well as in the states, are close to insolvency. The reason for our spectacular underachievement lies in the continuation of policies which had a certain validity as a response to the colonial experience, but which have long outlived their usefulness. The global economic scene has changed dramatically since they were formulated, and we must respond to the new realities.

Bimal Jalan, the well known economist and present Governor of the Reserve Bank of India, in this lucid and well-argued book, makes a case for governments doing what they alone can best do, and less of what they cannot do effectively.