Indian Economy: Current Problems and Future Prospects

Indian Economy: Current Problems and Future Prospects ms and rethinking of the pre-crisis policy regime, and even more importantly our development strategy, were called for. This realization led Dr. Singh to initiate systems reforms. In my view, these reforms would not have been initiated but for two external events. First was the collapse of the Soviet Union and its economy, whose central planning was the model for our own development. Second was the phenomenal success of China since the opening of its economy to foreign trade and investment in 1978. It brought home the message that, unless there was a systemic change in economic policies and management, India would be

*Samuel C. Park, Jr. Professor of Economics, Yale University, New Haven, CT, USA. This is a revised and extended text of a lecture delivered on January 3, 2003 under the auspices of the ICFAI Business School, Chennai, India, and to appear in ICFAI Journal of Applied Economics. I thank Nicholas Hope, Mohsin Khan, Venugopal Reddy, Shankar Acharya and Suresh Tendulkar for their valuable comments.

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left behind by its chief economic and political adversary in Asia, namely China. My emphasis on the contribution of external events to the initiation of systemic reforms is not to suggest that there was no rethinking earlier of our economic policies. Indeed, several high level committees had reviewed some of the policies (for example, the Abid Hussein Committee on Trade Policy in 1984, the Narasimham Committee on Controls in 1985). Of course, Rajiv Gandhi and some young economists from the World Bank he recruited for his staff did attempt to relax some of the most irksome controls. It is possible that he might have introduced systemic reforms had he not been stymied by his own party and not been distracted by the Bofors scandal. But I think it is unlikely since there was no push for system reforms from any quarter then. It so happens that a number of reports on important economic policy have been

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