Rakesh Mohan: Economic reforms in India – where are we and where do we

go?
Lecture by Dr Rakesh Mohan, Deputy Governor of the Reserve Bank of India, at a Public Seminar
organized by the Institute of South Asia Studies, Singapore, 10 November 2006.
Views expressed are personal.

* * *

We have now had a decade and a half of economic reforms. It is perhaps appropriate at this point to
stand back and take stock of what we have done as we venture further. Today I shall, therefore, make
an effort to (a) review what has been done; (b) evaluate where we are; and (c) suggest where we need
to go.
Let me give you the backdrop as to what motivated me to choose this topic. I recently came across,
The Tipping Point: How Little Things Make a Big Difference, by Malcolm Gladwell. He observes that
many large changes sometimes happen in a hurry. Whereas there is usually a step by step, gradual
process of little changes taking place, an epidemic suddenly acquires a tipping point and spreads
suddenly. I believe that at the present juncture we are in need of such an epidemic of change and
growth; we are perhaps at the tipping point. The macro-foundations of a healthy environment have
been laid and now we need lots of little things to make a big difference.

I. What has been done

What has been the main objective of the overall economic reform process in India, or for that matter,
anywhere? The primary objective has to be the overall acceleration of economic growth along with
rapid elimination of poverty. The means to achieve these objectives would be the injection of
competition in the economy in order to induce greater efficiency and productivity gains; and dedicated
efforts are needed to build capacity through human resource development.
Let me begin with a broad brush of history. Around 50 to 100 years before our independence in 1947,
there was hardly any discernible economic growth in the whole Indian sub-continent. Per capita
income was stagnant, perhaps declining over that whole long period. After independence, annual per
capita growth broke out of this long period of slumber and was in the range of 1 to 1.5 per cent for
about 30 years or so until around 1980. After 1980 it increased to about 3-4 per cent, which was a
major departure in our recorded history. Along with this change, a good deal of new thinking also took
place in terms of the strategy for future economic policy. As it happened, there was a full blown
economic crisis at the end of the 1980s: the balance of payments came under severe pressure, and a
realistic threat of sovereign default loomed over us; fiscal deficits had increased significantly over the
1980s; and inflation began to creep up to the late teens. These unfortunate developments focussed
our minds like never before: India has a proud history of never ever having defaulted on our
international objections; our fiscal management has historically been conservative; and inflation
seldom exceeded 10 per cent.
Consequently, a whole reform process got unleashed in 1991.
I will first give a brief run-down of the various reforms that have taken place in the last 15 years before
providing some evidence of their effectiveness. For expository convenience I shall make a conceptual
difference between (a) macroeconomic reforms and (b) microeconomic reforms.

Macroeconomic reforms and fiscal stabilisation

Over a period of time through the 1950s, 1960s, and 1970s the economy had become over controlled
and rigid; consequently entrepreneurship was heavily constrained. The import substituting inward
looking development strategy that could have been relevant in the 1950s and 1960s was no longer
suitable in the modern globalising world. Hence overall reform had to be undertaken to lay down a new
framework. Wide ranging macro reforms were undertaken along with corresponding microeconomic
and sectoral reforms. The macro reforms can be divided into (a) fiscal policy, (b) monetary policy, (c)
trade policy, and (d) exchange rate management. Without any claim of exhaustiveness, the exposition
aims at setting the context.

BIS Review 112/2006 1

Fiscal system
The tax system, both for direct and indirect taxes, had become very complex in India. Maximum
marginal personal income tax rates were high, along with a number of rates for different income
ranges. The corporate tax rate was high too. Accordingly, the tax code had to be riddled with a number
of special provisions for exemption of different kinds of income, and the corporate tax code was full of
exceptions and incentives. Because of high rates and complexity, avoidance and evasion was
naturally high. As a consequence, over the whole reform period, both the personal income tax and
corporate tax rates have gradually been brought down to 30 per cent, along with considerable
simplification.
Similarly, in the case of indirect taxes, there were high levels of both domestic excise duties and
customs tariffs, with a myriad of rates for different commodities. Again, this necessitated a whole
range of specific provisions and exemptions for different kinds of producers and end uses, leading to
great administrative complexity. A major programme of comprehensive and continuous reform has had
to be undertaken over the last 15 years. The rates in case of customs duties have been brought down
from an average of 110 per cent in 1991 (with highs over 400 percent) to a non agricultural peak of
12.5 per cent in 2006. There has been massive simplification of the excise tax structure to achieve a
"central" rate (CENVAT) of 16 per cent (apart from a few exceptions like food products, textiles and
some optical fibres that attract lower tax rates). Excise, which is levied at the manufacturing stage, is
now essentially levied as a VAT (Value Added Tax) so that cascading is avoided. In addition, the
service tax has been introduced in order to tax the whole economy more fairly and to reduce the
excessive burden on one sector, the manufacturing sector. Such tax reforms typically take a long time.
The latest most significant measure taken is the introduction of the Fiscal Responsibility and Budget
Management Act (FRBM) in 2004, which enjoins the government to eliminate its revenue deficit and
reduce its fiscal deficit to 3 per cent of GDP by 2009. Similar acts have been passed by most state
governments (23 states so far). So fiscal responsibility has now become part of our legislative
commitments. The other most noteworthy development at the federal level is the transformation of
state level sales taxes to the Value Added Tax (VAT), which has introduced a large measure of
rationality and uniformity in the state tax system. The state sales tax system had also suffered from
great complexity in terms of multiplicity of rates and special provisions. A vital feature of this tax reform
has been the consultative process among all the states as mediated by the central government, which
then resulted in this consensus for massive reform.
Overall, the fiscal reform process spanning both the central and state governments over the last 15
years has been truly wide ranging.

Monetary policy
Over the 1970s and 1980s, monetary policy, as we know it, had become almost non-existent: with a
system of credit allocation, administered and different interest rates for different purposes; automatic
monetization of fiscal deficits; and financial repression through pre-emption of banks’ resources.
Hence a number of measures had to be taken. These include: elimination of automatic monetization,
reduction of statutory pre-emption of the lendable resource of banks, and interest rate deregulation. As
a result of these measures independence of monetary policy and the central bank has been restored.
There was a consequent movement from direct to indirect instruments of monetary policy. These
changes in the practice of monetary policy are manifest in its effectiveness in the significant reduction
of inflation. In fact, if one bifurcates the period since independence into two, one from the early 1950s
to late 1990s, and the other since the late-1990s to present day, then there is marked difference in the
average inflation rates between the two periods. While it was around 7-8 per cent during the first forty
five years, it has fallen to around five per cent in the recent period since the late 1990s.

External sector reforms

It was the balance of payment crisis in 1991 that was the key trigger for reforms. Consequently,
actions on the external sector have been of the greatest importance. Despite the existence of
comprehensive quantitative trade restrictions along with high levels of tariffs, the balance of payments
was under continuous pressure through the 1960s, 1970s and 1980s. Consequently, exogenous
shocks such as oil price rises, or monsoon failures, invariably led to large crises necessitating
recourse to IMF resources. With the existence of these trade restrictions, the exchange rate was
typically overvalued over a long period of time. Hence, among the first reform moves was an ex ante

2 BIS Review 112/2006

real devaluation of the exchange rate in 1991 and a move of the exchange rate regime from that of a
crawling peg towards a market determined one, though somewhat managed.
The trade regime has undergone massive change with the removal of quantitative restrictions along
with rationalisation of the tariff structure. There has been a massive reduction in the number of tariff
rates and the peak rate of tariff has been reduced from around 400 per cent to 12.5 per cent for non-
agriculture products. Tariff reform for agriculture products has been constrained by the intransigence
of developed countries in reducing their farm subsidies. Internationally, India has always participated
actively in WTO negotiations. More recently, reflecting the hiccup in the achievement of consensus for
further global trade reforms, India has also began to participate in a number of regional and bilateral
trade agreements that are in the making.
With the change in the exchange rate regime and accomplishment of trade reforms the current
account is now open along with limited capital account convertibility. The exchange rate regime
focuses on management of volatility without a fixed rate target and the underlying demand and supply
conditions determine the exchange rate movements in an orderly way.

Micro economic reforms

Let me now turn to the micro economic reforms. Industrial deregulation, infrastructure reforms,
financial sector strengthening, capital market deepening and agriculture are the major areas where
such reforms have taken place.

Industrial policy
Massive deregulation of the industrial sector, in fact, constituted the first major package of reforms in
July 1991. The obsolete system of capacity licensing of industries was discontinued; the existing
legislative restrictions on the expansion of large companies were removed; phased manufacturing
programmes were terminated; and the reservation of many basic industries for investment only by the
public sector was removed. At the same time restrictions that existed on the import of foreign
technology were withdrawn, and a new regime welcoming foreign direct investment, hitherto
discouraged with limits on foreign ownership, was introduced. With this massive reform introduced in
one stroke in 1991, the stage was set for a policy framework that encouraged new entry, introduced
new competition, both domestic and foreign, which thereby induced the attainment of much greater
efficiency in industry over a period of time. One area of industrial reform that has been sluggish has
been the removal of restrictions that exist on investment in most labour using industries – known as
small scale industry reservations. In 1991 as many as 836 industries were reserved for investment by
only small firms, defined by the level of investment. The number of these industries has now come
down to 326.

Infrastructure
A number of measures have been initiated in the development of infrastructure since 1996. Many of
these reforms emanated from the recommendations of the India Infrastructure Report of the mid
1990s. We recognized that infrastructure investment had to be raised and suggested introduction of
the private sector in infrastructure which had been restricted earlier. This was part of a world wide
move during the 1990s. This has also necessitated other wide ranging reforms including new
legislations and formation of regulatory authorities.
With deregulation, introduction of the private sector and formation of the Telecom Regulatory Authority
of India (TRAI), telecom is indeed a success story. The major reforms in roadways were: imposition of
a fuel cess to finance highway construction; the commissioning of the National Highway Development
Project and PMGSY (Prime Minister's Gram Sadak Yojana or the Rural Roads Programme). In case of
ports private operators have been introduced and then the Tariff Authority of Major Ports (TAMP)
formed; in civil aviation new private airlines, new private airports and the beginning of an open skies
policy are in evidence. In all these cases the response has been positive.
In other infrastructure sectors, the reform process experience has been mixed. In the power sector,
where some of the early efforts for reform were made in the early 1990s, problems continue to
constrain its expansion. A comprehensive modern electricity act has been enacted, which has
enabling features for encouraging private sector entry, enhanced competition, and rational regulation.
However, despite the formation of a central regulatory authority and others at the state level,

BIS Review 112/2006 3

implementation of the tariff reform has not been found to be easy. State Electricity Boards continue to
suffer from losses, arising both from inadequate tariff and from transmission and distribution losses
(comprising important part of theft). Consequently, private sector investors in power generation face
insecurity of payment and hence expansion of private investment in this sector has been constrained.
Although the Act allows for private participation in distribution, practically it has not been found easy to
privatize distribution systems. Thus, power reforms have some way to go, although the legislative and
institutional pre-requisites are now in place.
Urban infrastructure is another area where reform has been inadequate and thinking has just begun.
In transportation, considerable reforms have taken place in air and road transportation but railways
have some way to go. Although there has been noted improvement in financial performance of
railways in the last couple of years, there is need for much greater structural reforms for this vital
transportation system to be put in a sound sustained growth path.

Financial sector
Financial sector reform is another area of India's success story. A major element of the financial sector
reform was the introduction of competition enhancing measures. Introduction of operational autonomy
and partial disinvestment of public ownership in public sector banks, entry of new private and foreign
banks and permission for FDI and portfolio investment in banking are some the major reform
measures in this area. Listing of almost all public sector banks is another major reform in this regard.
Besides, prudential regulations have been strengthened in line with Basel I standards and are now in
process of being updated to Basel II standards. An effort has been put in for phased implementation of
international best practices such as, CRAR, provisioning and income recognition norms, exposure
limits and measures to strengthen risk management.
The introduction of partial private sector ownership in public sector banks and their consequent listing
has been extremely important for market orientation of these banks and transparency in their accounts
and operations. This gradual process of banking sector reforms has contributed significantly to the all
round improvement in the financial health of the banking system.
Among other segments of the financial sector, new private insurance companies have been introduced
with limited foreign ownership. Subsequent to insurance nationalization in the 1950s and 1960s, all
insurance was in the public sector, with just one life insurance company and four general insurance
companies. The introduction of new competition has led to the introduction of new products and new
practices. A new regulator, the Insurance Regulation and Development Authority (IRDA) has been
formed to govern the insurance industry.
The capital market has been revived with both policy reforms and financial infrastructure development.
The Securities and Exchange Board of India was formed as the capital market regulator; a new
modern technology oriented stock exchange was formed (the National Stock Exchange, NSE); private
sector mutual funds allowed and encouraged; along with the abolition of the Controller of Capital
Issues (CCI) who controlled both issuance of securities and administered their price. A particular
development has been the building of world class payment and settlement architecture in the stock
market and government securities market. The one area that still needs considerable attention and
development is the corporate bond market.

Agriculture
Agriculture is the key significant area that has not been subject to comprehensive reforms. It is not
widely understood, though, that the reduction of industrial tariffs improved the domestic terms of trade
significantly for agriculture. In terms of trade reforms in agriculture, these have been constrained by
the lack of progress in the WTO and the intransigence of developed countries in the reduction of their
farm subsidies. There have, however, been a number of significant reforms: removal of restraints on
inter state movement of foodgrains; the restructuring of the public distribution system (PDS); relaxation
of restrictions under the Essential Commodities Act; introduction of forward trading in most agricultural
commodities; and removal of some marketing restrictions on crop produce. There is no doubt,
however, that agricultural development needs much more focused attention in order to revive the
somewhat stagnating agricultural economy.
Having given a bird's eye view of the reforms measures let me now turn to the outcome of this whole
wide ranging reform process.

4 BIS Review 112/2006

II. Where are we?
There is a need to remember where India was at the time of its independence. Power capacity was
just 1.1 per cent of what it is now. The country was literally in darkness! With high mortality rates, the
average Indian died at age 32. More than half of the country was under the poverty line. The income
of an average household is now nearly Rs.130,000. Poverty was down to 23-26 per cent in 1999-
2000. Per capita growth has gone up from about 1.5 per cent per year in the first 30 years after
independence to about 6.4 per cent per year now. This makes a palpable difference in peoples'
standard of living (Tables 1, 2 and 3).

BIS Review 112/2006 5

Having outlined the major elements of India's achievement since independence let me briefly review
the broad trends in various macro-policy variables.
The step-up in the growth rate of the economy has been facilitated by increase in domestic investment
to over 30 per cent of GDP, financed predominantly by domestic savings. Domestic savings increased
to over 29 per cent of GDP by 2004-05 after some stagnation in the second half of the 1990s. The
improvement in overall savings in recent years has particularly benefited from the turnaround in public
sector savings. After turning negative between 1998-99 and 2002-03 owing to sharp deterioration in
the savings of Government administration, public sector savings have turned positive again from 2003-
04 onwards, mainly reflecting the ongoing fiscal consolidation. In 2004-05, the public sector savings

6 BIS Review 112/2006

rate was 2.2 per cent, but it was still less than a half of the peak of almost five per cent touched in
1976-77. Improvement in corporate profitability since 2002-03 has also contributed to increase in
domestic savings in the recent years. Household savings remain the predominant component of
domestic savings, contributing almost three-fourths of overall domestic savings in 2004-05. For the
Indian economy to achieve higher growth on a sustained basis, further improvement in overall savings
is necessary and, in this context, public sector savings will have to play a significant role (Table 4).

Fiscal performance has still some way to go. The gross fiscal deficit has come down from 7 per cent in
1993-94 to 4.1 per cent in 2005-06. However, this needs to go to 3 per cent by 2009. Tax Revenue
has just recovered to 10 per cent of GDP, about the 1991-92 level, and needs much greater growth
(Table 5). Inflation is down from the 45 year average of 7 - 8 per cent to 4.5 - 5.0 per cent. So we have
achieved some major macro and monetary improvements. However, growth needs investment and
savings. Although the growth process stuttered somewhat in the late 1990s and early part of this
decade, it has clearly recovered now and we seem to be on a sustainable path of annual GDP growth
in excess of 8 per cent. After the award of the Pay Commission in 1997, public finances had come
under strain and hence public savings had become negative. This was also accompanied by a
business cycle slowdown and low profitability in the private corporate sector and low corporate
savings. Both recoveries have now taken place: public sector savings are now again positive; and
corporate profitability is also very healthy. With continuing growth in household savings, gross
domestic savings are now 30 per cent plus and hence sustained investment rates in excess of 32 per

BIS Review 112/2006 7

cent are feasible. The sustenance of a higher growth now needs improvement in public investment
and delivery of public services.

Financial sector reforms in general and banking reforms in particular have been a key ingredient of the
Indian reforms process. As a result of these reforms, statutory pre-emptions of banks (in the form of
high cash reserve and statutory liquidity ratio) got reduced to a great extent - so was the extent of
financial repression. Interestingly the asset quality of the Indian banks has improved to a great extent
with a distinct improvement in capital-to-risk adjusted assets ratio (CRAR) of banks which is much
above the stipulated level (9 per cent), and drastic reduction in NPA levels, notwithstanding the
transition to 90-day delinquency norm in 2004 (Table 6). The initial recapitalization by government in
the public sector banks has been rather meagre (about 1 per cent of GDP) which was supported by
equity issuance by the public sector banks. With public listing the public sector banks in India are now
more subject to market discipline. Furthermore, there has been a distinct improvement in post-reform
productivity as reflected in various indicators such as, business per employee, profit per employee and
branch productivity. These productivity gains can be attributed to both technological improvement as
well as peer pressure or catching up effect.

8 BIS Review 112/2006

Let me briefly touch on the external sector now. The measures taken in respect of the external sector
have clearly been very successful. Merchandise exports have increased from 6 to 13 per cent of GDP
between 1990-91 and 2005-06; imports have also increased from 10 to 24 per cent of GDP over the
same period; foreign exchange reserves increased from $ 1.5 billion to $ 165 billion.
Industrial growth was very high during the 1992-97 period in the immediate exuberance of industrial
policy reforms. However, there was a significant slowdown during 1997-2002. As tariffs were reduced,
import controls were lifted, and domestic competitive threats emerged at the same time, the initial
protective effects of the ex ante real devaluation of 1991 wore off and the Indian corporate sector,
particularly in manufacturing, found itself in difficulty. The Indian corporate sector was therefore in the
throes of significant technical restructuring, business process restructuring and financial restructuring,
all at the same time. It can be said in retrospect that, though this process resulted in an industrial
slowdown then, it has contributed to the industrial competitive resurgence that is now observed. There
is a revival of manufacturing. A competitive company can be found in almost every sector industrial
sector now. As indicators of this competitiveness, exports are growing more than 20 per cent; and the
balance of payments with reference to China is almost even (Table 7).

BIS Review 112/2006 9

The performance of the Indian corporate sector has been highly encouraging in the last three years.
The previous occasion, when such a healthy performance was demonstrated by the corporate sector
was in the early 1990s, i.e., during the initial period of exuberance immediately after the economic
reforms programme was initiated in India. But during the latter part of the 1990s, around 1997, the
momentum in the corporate sector slowed down in sync with the general economic slowdown. The
recovery since then is remarkable in all important parameters: sales, gross profit, profit after tax, all
have recorded robust growth rates during 2002-03, 2003-04 and 2004-05 implying that economic

10 BIS Review 112/2006

activity in the corporate sector has taken a full circle after three years of dull performance during
1999-2000, 2000-01 and 2001-02 (Table 8).
The current exuberant run of corporate sector performance has continued well into its fourth year as
evidenced by the corporate sector results for the first quarter of 2006-07. The strong sales
performance has resulted in an improved bottom-line for the corporate sector as a whole. Powered by
a strong top-line performance, gross profits of the Indian corporate sector grew at a sturdy rate of 34
per cent in the quarter ending in June 2006 on top of a 20 per cent growth recorded in the full fiscal
year of 2005-06. The interest costs have been plummeting in the recent years due to an overall
softening of interest rates and lower debt equity ratios, which is an outcome of conscious policy-driven
measures.

There is in fact a new confidence in the air. Let me give some random illustrations - TISCO is the
lowest cost steel producer, Hindalco / Sterlite / NALCO are competitive aluminum producer, Reliance
is a major petrochemical producer. We now have world class producers in most sectors and there are
many more success stories. Moser Baer exports more than Rs.1000 crore; Hero Honda with 1.7
million motor cycles is the largest producer of motor cycles; one now gets a wide range of automobiles
in India such as Maruti, Tata, Hyundai, Toyota, GM, Ford; in Pharma there are Ranbaxy and Dr
Reddy’s among others; Bharat Forge exports castings and forgings to all main auto producers;
Sundaram Clayton has been adjudged as Best GM supplier.
Let me sum up the broad contours of success of the overall economic reform programme. In general,
the reform programme has achieved remarkable success. Annual GDP growth has averaged 6 to 6.5
per cent during the whole 15 year period since reforms began, and is now ascending to a higher
trajectory of 8 per cent plus sustained growth. The external sector is comfortable: gone are the days of
perpetual "shortage" of foreign exchange. In contrast, some observers view India’s foreign exchange
as reserves as a problem of plenty. Industrial growth has been restored and the manufacturing sector
has found a new level of competitiveness, quality and efficiency. There is a transformation in the
external impression of the Indian economy: it is now viewed with a sense of some awe and confidence
in its potential of sustainable high growth. Finally, measured poverty has been reduced significantly.
But we still have miles to go. The poverty ratio of 23-26 per cent is still too high, about a quarter billion
people living in poverty are too many. Employment growth is inadequate and we have an expanding
young labour force, which will demand quality jobs. Public service delivery continues to be poor, with
little sign of improvement.
Let me now turn to a menu of things that we need to do.

BIS Review 112/2006 11

III. Where do we go?
We have now had 15 years of economic reforms spanning five governments. What have these
reforms achieved? We have ascended a higher growth path; poverty has been reduced; the external
sector is more than comfortable; industrial growth has been restored; and all this has been achieved
with financial stability in the country. As a consequence of all these momentous changes there is a
new respect for India in the world and, even more important, Indians in all walks of life have found a
new level of self confidence.
But we still have miles to go. We need to move to the next level of sustained growth so that per capita
income growth can exceed seven per cent per annum (or over 8.5 per cent per GDP growth per
annum on a sustained basis) and thereby see at least a doubling every decade. Although poverty has
been reduced considerably to less than 25 per cent, this level is still too high with 250 million living
under the defined poverty line, which itself is at a very low level.
The main organizing principle of most reforms carried out so far has been that of freeing the private
sector from the myriad government controls that had existed for a long time. Whereas this process
itself still has some distance to go, the consequence of this widespread deregulation and introduction
of competition in most segments of the economic sphere has been the very visible unleashing of
entrepreneurial energies at all levels and in most parts of the country. We have been reasonably
successful in what we set out to do so far, with the benefits of increased competition and efficiency
manifesting themselves in the higher recorded growth, particularly in the present decade.
The issue that arises now is whether we have reached the limit of private sector led acceleration in
investment and output growth? Will this now be increasingly constrained by the lack of public
investment, both physical and social? An underlying theme encompassing most constraints now is the
lack of adequate delivery of public services in both quality and quantity. The public service system is
simply not functioning.
Further acceleration in economic growth and reduction of poverty will need greater investment and
employment growth along with enhancement of productivity. For such acceleration to take place we
will need a significant enhancement of growth in capacity building and in the availability of public
services that the private sector cannot provide.
I, therefore, believe that just as the first generation of reforms empowered the private sector to perform
as it can to the limits of its abilities, the second generation of economic reforms must focus on a similar
empowerment of the public sector to deliver public goods and services for the benefit of all segments
of the private sector, corporate entities and the public alike. Lest this proposition be misunderstood, it
should be made clear that I am not advocating greater empowerment of the public sector to increase
its control over the economy as was the case in the past. The "public sector" needs to be seen in its
widest definition to encompass all levels of governments from the local, state to national, and their
entities, which deliver public goods and services.
I would like to take up four areas, by way of illustration, where we need to give focused attention and
which I believe can mainly be done by the public sector, even if some of it is to be delivered through
public private partnership.
The four areas that I propose to address are: agricultural development, urban development, human
resource development, management of public services.
What is common among these sectors is the lack of competence in public systems that govern these
areas. There are other areas of broader governance that could also be taken up, particularly the
maintenance of law and order, but that would take me too far a field from my area of competence
related to the economy.

Agriculture
One of the most disturbing features of the recent growth experience has been that of the deceleration
in agriculture growth (Table 9).

12 BIS Review 112/2006

With about 60 per cent of the population still largely dependent on agriculture, this deceleration has
clearly had a significant impact on slower reduction in poverty levels than otherwise would have been
the case. Moreover, for aggregate annual GDP growth to exceed 8.5 per cent on a sustainable basis it
will be difficult if agricultural growth itself does not exceed 4 per cent annual growth. The fast growing
economies of East and South-East Asia all exhibited elevated levels of agriculture growth along with
industrial and service sector growth during their fast growth periods. Higher agriculture growth will also
lead to faster increases in rural household incomes giving rise to greater demand for goods and
services in rural and urban areas alike, which would be employment promoting.
In order to understand where the potential for higher agriculture growth may lie, it is useful to briefly
examine the pattern of growth in both the demand for and supply of agricultural commodities.
Let us take the supply side first. After the prolonged drought of the mid 1960s, and the severe
difficulties experienced in food security during that period, the government launched a crash
emergency programme to accelerate the production of basic foodgrain cereals. This was fortunately
accompanied by the discovery of high yield rice and wheat varieties internationally, which made the
green revolution possible. Thus, growth in rice and wheat production took place in a sustained fashion
through both significant productivity gains and through expansion in the area devoted to cereal
production. The successful evolution of the Green Revolution gave the country both agriculture growth
and food security over a period of more than two and a half decades. In recent years, however,
production growth in cereals has stagnated significantly, and further productivity gains are increasingly
difficult to achieve.
Equally significant change can be observed on the demand side. As may be expected, with increasing
incomes, there has been a progressive diversification of the Indian diet in both rural and urban areas
involving a shift away from cereals to non-cereals. For the poorest, of course, the initial increase in
incomes leads to enhanced demand for food and a shift from lower quality cereals to higher quality
cereals like wheat and rice. As incomes increase further, greater growth takes place in the demand for
non-cereal foods such as milk, fruits and vegetables, and for fish, poultry and meat for those who are
not vegetarians. Consequently, it needs to be understood that, whereas there may be technological
limitations to the continued growth of cereal production from the supply side, there are also limitations
to the continued growth of cereals from the demand side. Admittedly, the shift to demand for certain
kinds of meat will lead to acceleration in the demand for certain kinds of feed stocks for animal
production. Nonetheless, the key point for policy is that the acceleration in agriculture production
cannot come from that of cereals, keeping both demand and supply constraints in mind. That being
said it still needs to be emphasized that the serious stagnation in cereals production that has taken
place in the last ten years or so needs to be addressed with urgency.

BIS Review 112/2006 13

What then needs to be done? We can learn from the approach taken more than thirty years ago,
which still dominates our policy thinking. The success of the green revolution was achieved by the
adoption of a coordinated policy package that addressed the needs of production on a national scale.
Simultaneous provision was made for the supply of needed technology inputs, infrastructure, input
supplies and the delivery of credit in a timely fashion. Technology inputs were provided by the setting
up of a chain of agricultural universities across the country, which, moreover, were also connected
with the international agricultural research system and foreign counterpart agricultural universities,
particularly the land grant colleges and universities of the United States. For the transfer of technology
from the laboratory to the farm, agricultural extension systems were organized, first under the
Intensive Agriculture Districts Programme (IADP) and later the Intensive Agriculture Area Programme
(IAAP). For a considerable period of time both the research and extension systems proved to be quite
effective, but deteriorated later. Infrastructure provision was essentially needed for the expansion of
irrigation from ground water sources, which required the greater availability of electric power to
energize pump sets. Consequently a large rural electrification programme was initiated along with the
provision of power for agriculture at subsidized rates. The main new inputs needed were seeds,
fertilizers, pump-sets, and tractors. Apart from the arrangement of supply of these inputs,
corresponding arrangements were made for appropriate credit delivery to farmers to enable them to
buy these inputs. The nationalization of banks, the creation of regional rural banks, and the creation of
National Bank for Agriculture and Rural Development (NABARD) to govern the rural cooperative
banks were all directed towards this massive change in the delivery of credit to fuel the green
revolution. Most of these activities were done on a national basis with appropriate coordination with
state governments and other public sector agencies. Given the highest priority that was attached to
this programme, it delivered.

Need for a second green revolution

The need now is for a corresponding second agricultural revolution, but one that will have to be much
more heterogeneous. With the increasing diversification of the Indian diet, there is great potential for
acceleration of growth in the production of all non cereal foods, though in varying degrees. There is
need for a new agricultural revolution in all areas such as: dairying, horticulture (covering both fruits
and vegetables), aquaculture and pisci-culture, poultry, meat, and even wineries. There is also similar
potential for acceleration in growth in non-food agriculture. The potential in all these areas is massive
for income and employment generation on a well distributed basis; for generation of a host of new
activities; and for widespread innovation.
How can this be achieved? A key common feature behind the success of the national programme
related to both the green revolution and the white revolution (milk production) was the relatively
homogeneous nature of cereal production and of milk. It was thus possible to design national
programmes that were broadly applicable country wide with relatively easy regional variations. The
difficulty in designing programmes for the new agricultural activities is that these products are very
heterogeneous and which, moreover, exhibit great regional differences.
Even for each activity, say poultry production, it will be difficult to design the kind of national
programmes that helped the green and white revolutions. The need is now for decentralized packages
for the many different activities that will have to be regionally disaggregated. The broad approach can
be similar. Each package will need to make simultaneous provision for technology inputs,
infrastructure, supply of inputs and associated credit delivery. Whereas the packages will need to be
diverse and decentralized, it is unlikely that they will be developed without the initiation of a nationwide
coordinated programme on a mission basis. Such a programme could form expert teams for each
activity and location. It will be essential to bring together high level expertise, both domestic and
international, along with local practitioners. Each team would prepare a package for their respective
activities and locations. There is now much more expertise available across the country relative to the
situation 35 years ago.
Along with such a disaggregated but coordinated programmes, there is need for a major new initiative
for the rejuvenation of agricultural research that is also regionally distributed. A crash programme is
required for the urgent renovation of agricultural universities, which will need to be supported
internationally as well. A beginning has already been made by the Prime Minister’s initiative to renew
association with the US research system. These universities need to be made respectable again. They
will also need to specialize in the activities specific to their locations. The transfer of technology from
these rejuvenated universities and from other sources will also have to be specific to each activity and
new forms of extension activity will need to be explored to achieve the maximum effectiveness. There

14 BIS Review 112/2006

is increasing expertise in the private sector and in the cooperative sector so new forms of public
private partnerships will have to be explored, just as the National Dairy Development Board innovated
in respect of milk.
The banking system will also have to explore ways and means of achieving efficient credit delivery to
these new agricultural activities along with all their associated activities. As the system develops, the
supply chain from farm to market will need to be financed: warehouses, cold storages, rural
transportation, refrigerated trucks, along with all the service intermediaries. The efficient delivery of
credit in a dispersed manner in rural areas will need to give special attention to the minimization of
transaction costs through reduction in layering of intermediaries, much greater use of information
technology in information collection, risk assessment and risk monitoring. Clearly, a great degree of
innovation is called for now with out of the box thinking, away from the past paradigm of directed
credit.
Finally, agricultural diversification and growth is not possible without the provision of rural
infrastructure: roads, storage facilities, transportation, telecommunication and power. All of these
activities have very high economic returns but, those that have public good characteristics have low
financial returns. They are therefore difficult to finance. User charges will have to be used where
feasible, but other financing means will need to explored. States like Punjab, Haryana, Tamil Nadu
and Goa built rural roads early and financed them through the imposition of local cesses like the Mandi
cess. Hence there is clear need for the search for new financing mechanisms. Investment in and the
financing of rural infrastructure is therefore a key challenge. The government has clearly recognized
this through the initiation of Bharat Nirman and PURA.
I have digressed at some length on the need for accelerating agricultural growth and how it could
possibly be done because of its obvious importance and its relative neglect over the past 15 years.
The key point that I would like to emphasize here is that without the organizing and coordinating
initiative of the government and its agencies at various levels, such a programme cannot be
implemented. It is in this context that I have talked about the empowerment of the public sector in all
its aspects, but particularly related to competence.

Urbanisation and urban development

Let me now move to issues related to urbanization and urban development. It may be ironic but, just
as agricultural growth has stagnated in recent years, the astonishing fact is that urban population
growth also slowed down in India during the 1980s and 1990s (Table 9). The normal expectation is,
and the historical experience is that urban growth normally accelerates with economic growth. So the
slowing of Indian urbanization is unexpected, perhaps anomalous, and worrisome. At the same time,
the magnitude of India’s urban population is large, about 300 million people, similar in magnitude to
the total population of the United States. Even with low growth it will probably double by 2030 or so.
According to most projections done in the 1980s the urban population in 2001 was expected to be
about 30 to 35 million higher than the estimated 285 million. Contrary to popular impression, there has
been a significant slowdown in net rural urban migration: people are not flowing into cities and there is
no "urban explosion". During the whole decade of 1981 to 1991, total net rural-urban migration was
only 12.7 million people and 14.4 million in the following decade of 1991-2001. In both decades, net
rural urban migration accounted for only 21 per cent of total urban population growth.
Why is this worrisome and why has this strange occurrence taken place in India?
In the light of low growth in agricultural production and productivity, had there been a greater
rural/urban transformation, outward migration from rural to urban areas would have relieved some of
the economic pressure in rural areas. Ironically, this in itself is also related to the inadequate increase
in rural productivity. Had there been greater increases in rural productivity, rural incomes would have
increased faster, leading to higher growth in the demand for non-food goods, leading to higher
industrialization and urbanization. With higher productivity, more food could also have been produced
by fewer people and hence more people would have been released off the land. The second issue
relates to the atypically low growth in manufacturing employment: during the decades of the 1980s
and 1990s, output growth in industry far exceeded that in employment. This experience is also quite
different from that of the East and South-East Asian countries. Thus, there have been neither demand
pressures for labour in urban areas, nor supply of excess labour from rural areas. Both are related to
failures in both public policy and public administration and public management. Just as we have not
responded to the changing contours of agriculture, the low absorption of labour in urban areas is
related to inappropriate industrial and urban policies.

BIS Review 112/2006 15

The persistence of industrial policies, such as restrictions in many labour using manufacturing sectors
being reserved for small scale industries, and rigidities in labour legislations, have contributed to the
bias against labour using industrialization. Such policies were further compounded by inappropriate
industrial location policies that have restricted location of industries in cities and urban areas since the
1970s. Such restrictions have led to the loss of agglomeration economies, thereby raising the cost of
industrialization and hence inhibiting expansion. Moreover, the role of cities as incubators for
manufacturing entrepreneurship was not also allowed to flourish; and finally it is labour using
industries that need to be located in cities and urban areas. The necessity to locate in distant
locations, where labour is not easily available, also inhibited labour using industrialization, and hence
urbanization.
Another set of reasons why urban growth slowed in the 1980s and 1990s is connected with the extant
rigidities in urban land policy. The existence of rent control laws since the 1940s, urban land ceiling
laws since the 1970s, inappropriate zoning and building bye-laws, have all contributed to the
inflexibility in transformation of land use in urban areas, thereby slowing urban growth. These rigidities
also implied excessive government control of urban land development, which was handicapped further
by lack of resources and expertise. Thus land assembly and land development in Indian cities has
been handicapped generally and has also led to excessive increase in urban land prices, making
shelter unaffordable for a large proportion of the people.
These policy rigidities have been further compounded by inadequate urban infrastructure investment
and severe problems in urban governance: urban local bodies have not been effective; they suffer

16 BIS Review 112/2006

both from lack of expertise and of financial resources. Local taxes are typically not buoyant and poorly
administered, and user charges are low and ineffective.
The consequence is that most urban environments are inhospitable, particularly to the less well off.
This is indicated by the fact that about half of urban households do not have access to drinking water
within their house; and about a quarter of urban households do not have access to any latrine, private
or public. These messages have obviously gone back to the village and it is no wonder that urban
growth has slowed down.
What is to be done? This is another case where the public sector has to be empowered to make
appropriate knowledge based policy that is city and people friendly; and also to build capacity to
manage cities in a progressive framework. Overall industrial policy and industrial location policy both
have to be rid of their anti-labour using bias; and industrial location policy has to provide for the
conscious development of urban industrial parks. Many Asian cities, for example, including a high
income city state like Singapore, have a profusion of flatted multi-storied factories that house a host of
non-polluting labour using manufacturing facilities. There has to be a recognition of the virtue of
industrial clusters and facilitation of associated facilities such as industrial training institutions,
educational and health facilities. Many such activities can be supplied by the private sector but it is
enlightened public management that can bring them about.
We now have 35 million plus cities and about 400 cities with more than 100,000 population. Thus, the
management problem of these cities are immense in terms of financial management, in the provision
of public services, and overall city management. The budgets of the largest cities are larger than those
of some states. Yet there are almost no programmes for the training of city managers, there is little
expertise available, and the prestige of municipal employees is low. Once again there is a massive
failure to provide for public management of cities in India in all its various manifestations.
Hence strengthening of city management is a key requirement for the healthy growth of Indian cities.
This needs a massive programme for financial strengthening of local bodies including revamping of
their local tax systems so that they become buoyant. Ways and means will also have to be found for
credit enhancement of urban local bodies so that they become credit worthy and can then raise the
resources necessary for urban infrastructure investment. Overall, cities are huge public management
systems that have been largely neglected.
With the opening of the Indian economy, Indian industry and enterprise of all kinds have to be
competitive with the best in the world. They will be handicapped if the cities that they inhabit are
themselves not as efficient as their counterparts elsewhere. Hence, the acceleration in growth of
Indian enterprise will be constrained without adequate empowerment of the public sector in terms of
management of Indian cities. This is a job that the private sector clearly cannot do.

Human resource development

Let me now turn to human resource development. It is ironic that we have achieved great international
recognition because of our achievements in information technology, which is often termed as the
knowledge economy. We often believe that our comparative advantage is in knowledge intensive
sectors. In fact, given the basic indicators of health and education, it is difficult to sustain the notion
that we are a knowledge intensive country, notwithstanding the fact that we do have islands of
excellence in various areas (Table 10).

BIS Review 112/2006 17

Basic literacy levels in India have been improving continuously, and most noticeably in the 1990s from
52 per cent in 1991 to 65 per cent in 2001. But these levels are much lower than most comparator
countries. If productivity in agriculture is to improve, the basic education levels of the rural labour force,
both male and female will need to improve considerably. Similarly, if labour using Indian industry is to
compete in the world, its labour force also will have to be better educated and technically trained. The
future will essentially need a skilled labour force.

Primary and secondary education

That there is increasing appreciation of the education deficit in India is shown by the new programmes
launched by the government for providing a new thrust to primary education: the Sarva Shiksha
Abhiyan (Education for All Programme). There are also a host of non governmental and other
philanthropic organizations now concentrating on the rapid expansion of primary education in India.
However, it is now well known that there has been noted deterioration in the public education systems
in most parts of India. The performance of public primary schools has been widely brought into

18 BIS Review 112/2006

question. There is also increasing evidence of a shift from public to private schools, even by the poor,
and often their quality is no better. What is encouraging is that with even poor parents spending a lot
of money on primary education, which should really be provided for by the state, there is a clear
demand for it and recognition of its utility for upward mobility. The expansion of government
programmes will certainly expand the quantity of education being offered.
What needs equal attention, however, is the quality of education, which would emerge if there is
greater local accountability of the school system and greater local involvement in general. Teachers
themselves need to be incentivised and better trained; and teaching materials have to be provided and
improved. Clearly, these problems are the most pronounced in the poorest parts of the country that
are also underserved in terms of basic infrastructure like power, rural roads and communications. A
great deal of innovation and experimentation is going on but much remains to be done. Whereas there
should be no doubt that the state retains primary responsibility for ensuring primary education to all,
there can be many different ways of delivering it, including the involvement of non government schools
of different descriptions.
As some success is achieved in the expansion of primary education and reduction in drop out rates
after primary schooling, the next thrust will be the burgeoning demand for secondary education. As we
progress, incomes increase and production processes need greater and greater skills to be
competitive, primary education will no longer be adequate for performing lower skill tasks. Whereas
there is considerable thinking going on with respect to primary education, we haven’t even begun to
think about the resources and strategy needed for the large consequent expansion of secondary
schools. We will need to expand the supply of secondary school teachers very significantly, invest
large resources in school buildings and in the preparation and distribution of education materials. It is
difficult to locate secondary schools in each village: issues will also arise on how to make these
schools accessible to children in widely dispersed rural habitations. Once again, great innovation is
needed in thinking about how all this is to be done, and how the large resources needed will be
generated and invested efficiently and responsibly.

Vocational training
What will these schools teach? Every educational system has had to deal with the tension between
the need for basic secondary education and vocational training, and the difficulties involved in guiding
children appropriately to the different streams. Here again, there has been little organized thinking in
India. Technical training has essentially been provided by Industrial Training Institutes (ITIs) but they
are not many, and often do not turn out students with the relevant skills. It is interesting that in India
there are 175 defined trades that can be subject to organised training; in Germany there are 2500
such defined trades and occupations, each with its organized training syllabi, training certification, and
availability of training institutions. The famed German vocational training system involves a very
complex web of interaction between the federal government, state governments, local chambers of
commerce, and firms that fund and take on the trainees. Whereas it would not be appropriate to
suggest that India adopt the German model, which is itself undergoing change and modernization, I
only mention it to suggest that it is possible to evolve an organized approach that makes vocational
training respectable, demand oriented and with great local involvement and accountability. A
beginning has been made in seeking the upgradation of 500 ITIs with industry participation, but much
more needs to be done to ensure regular skill upgradation in all vocations.
The effort will have to involve extensive industry participation at the local level so that the training
imparted is seen as relevant by prospective employers. As with the new requirements for agricultural
extension systems, the systems for vocational training will need to have great heterogeneity in both
the kind of training to be imparted but also how the training to be organised, accordingly to the
different needs in the widely disparate regions of India. We also need to recognise that service
occupations need organised training as well. One can illustrate this by the longtime recognition of
training needs in the hotel industry and how the private sector itself has set up a large number of
excellent training institutions. Similar has been the case in information technology where many private
sector training institutions emerged as demand started rising. Hence this is clearly an area that is most
well suited for public private partnerships. Once again, however, the organisation of public private
partnerships also involves a great deal of organizational capacity in the public sector, which designs
delivery systems in - a way that they spawn efficiency, productivity and innovation.

BIS Review 112/2006 19

Higher education
Let me now move to issues related to higher education. There has clearly been a huge increase in
quantity since independence and in the proliferation of private sector technical institutions in recent
years, particularly in the Western and Southern regions of the country. However, the success of a few
elite institutions such as the Indian Institute of Science, Indian Institutes of Technology (IITs), Indian
Institutes of Management (IIMs), the National Institute of Design, the more recent National Law
Schools, have masked the general lack of quality in Indian higher education. Even among the elite
institutions, only three were included in the top 500 higher education institutions in the world as ranked
on objective criteria by a group of Chinese researchers. Because of the good quality of Indian
secondary schooling on a relatively wider scale, competitive processes lead to the emergence of a
large number of very bright Indian students who can then excel despite the poor quality of instruction
and environment in higher educational institutions.
Meanwhile, there has been an explosion of colleges and universities in East and South East Asia, in
China, South Korea, Singapore, Hong Kong, and Thailand in both quality and quantity. We must
recognise urgently that there is great need to both improve the quality of our colleges and universities
in terms of facilities, laboratories, libraries, and most importantly, faculty - along with significant
expansion of quantity. What should be clear is that the current system will not do. Although a whole
host of private technical institutions have mushroomed in recent years, most of the higher education
system remains government controlled and run. This was originally modeled on the British public
university system but which has, over the years, become ossified in such a fashion that creativity and
quality are at a premium.
There is a severe shortage of resources: tuition fees are extremely low and the government is
strapped for resources. Moreover, there are legitimate competing claims for scarce resources for
primary and secondary education, not to mention vocational education.
Here also we need to search for new systems of governance that can allow for diversity in delivery.
While providing appropriate incentives for the achievement of excellence with the great increase in
compensation levels in the private corporate sector, and the lack of even basic facilities in colleges
and universities, attracting brighter students to take up teaching careers has become even more
difficult than it was hitherto.
There is, to my mind, some needless debate on private versus public education. No good higher
educational institutions in the world are profit oriented. Even in the U.S., where there is perhaps the
greatest prevalence of 'private' colleges and universities, the proportion of students in state run
institutions form the majority. Even those institutions that are labeled as private are essentially
autonomous non-profit institutions. They are private in the sense that their management is
autonomous of government controls, but most receive significant government grants in different ways.
What is interesting about these institutions is their system of governance that attempts to ensure
quality, excellence and competitiveness.
Once again, I would not advocate the transplantation of any foreign system into India, since each
system is rooted in its own peculiar history. What I would argue for is the generation of a new
excitement for higher education in the country and for a search for new resources and new forms of
governance that ensure quality and aim at achieving excellence.
Overall, there is no way that we can sustain growth of the kind that we envisage, 8 per cent plus
annual growth, unless the whole education system, primary, secondary, vocational and higher is
revamped. The State must bear the responsibility for ensuring that this happens, but must organise it
in such a way that the best entrepreneurial energies that are now manifesting in the country are also
harnessed towards the cause of education.

Health
Before I close on the subject of human resources, I should mention the issue of health. This is in itself
a vast and complex subject which I am not competent to even touch. The key point that has to be
made, however, is that economic efficiency can only be achieved at different levels if people are
healthy. Whereas, a good deal of success has been achieved in almost eliminating a number of
infectious diseases of the past, morbidity in India remains high. There are significant issues related to
the delivery of public health, particularly the availability of clean water and sanitation but there are
equally important issues to do with the delivery of curative health. Here once again, there is
widespread evidence of the deterioration of public medical systems which are being replaced by

20 BIS Review 112/2006

private providers. Given the availability of new techniques, new drugs, and diagnostics, the less well
off are increasingly finding it difficult to access these services at any semblance of affordable cost, and
health insurance is in its infancy.
If our young and expanding population is to look forward to a healthy and rewarding life, this is another
vital area crying out for innovative, affordable systems of public private partnerships that are reliable
and trustworthy. Once again the public sector has to gain competence for organising such a system.

Public sector management

The common theme that runs through the three areas that I have chosen to illustrate the need for the
next generation of reforms is that of competent and innovative public management: I have not spent
any time on the physical areas infrastructure since they have been discussed otherwise much more
often. All the areas of physical infrastructure involve the management of large systems: airports, ports,
railways, telecommunications and the like. All of them also have in common the possibility of at least
part delivery of the private sector. As discussed, cities, education systems, health systems, hospitals,
are also all large public service systems that are in dire need of efficient and innovative management.
The key issue is that of efficient delivery of public services, and in India particularly, at affordable
prices.
In most of these areas a large public sector presence is unavoidable. Urban water supply systems,
sewerage systems, public lighting and public transportation are typically organised by some form of
governmental authority, and even if there is some element of private delivery. Being essential
services, there has to be some form of public regulation. In the railways also, whereas some private
delivery is possible, international experience suggests that basic infrastructure ownership has to be
with the government, along with regulation and allocation. Similar is the case with ports and airports:
typically ownership is usually with the government or public authority, while delivery can often be
prioritised.
All such public management systems are typically very large and complex. Hence they need
excellence in public management. One would imagine that the biggest management challenges would
lie in the management of these large complex systems which, in principle, should attract the brightest
managers. The irony, however, is that there is little generation of expertise for such management
functioning and there are few prestigious schools of management that consciously impart training for
managing these systems. All these systems need complex financial management of huge budgets; all
of them involve sensitive customer delivery; and all involve complex logistics. In other words, all such
systems have all the elements that should attract the brightest people who like to deal with challenges.
It is ironic that there is a proliferation of management schools imparting complex training for small
challenges, but none for these complex tasks.
What do we need to do? We need to make public service prestigious again: not for the exercise of
power and authority, but for tackling challenges for efficient public service delivery. Most public service
delivery operations, including those run by the civil service, need the injection of outside expertise at
different levels. Each of our public authorities discourages lateral entry and therefore tends to become
inward looking and suspicious of new ideas. Lateral entry of outside experts would do much to inject
new energy and even public entrepreneurships.
A theme running across the different sectors that have been discussed is the exploration and
development of new forms of public private partnerships. It must be understood that these are not
easy to foster. They usually involve the tension between of two different organising principles: one
non-profit and the other profit seeking. The challenge is to design appropriate incentive systems so
that the ultimate objective gets aligned. Different sectors will need different forms of partnerships. In
education, for example, the partners could well be non-profit non-governmental organizations. In ports
and airports, the partners could clearly be profit seeking private companies.
Overall there has to be a search for innovative forms of public service delivery. This would also involve
realignment of compensation levels. If individuals of high levels of competence are sought to do the
most complex tasks they will need to be compensated adequately.
We thus need a nationally generated focused programme to improve public administration and
management at all levels of government and public authorities so that the delivery of public services
becomes efficient. This cannot be done by the private sector and if it is not done the private sector will
itself suffer from the emerging inadequacies of health, education, rural and urban infrastructure, and all
other physical infrastructure.

BIS Review 112/2006 21

Concluding remarks
The economic reforms process carried out in India over the last 15 years has brought forth a burst of
new entrepreneurial energies across the board in almost all sectors. As a consequence, the country is
now recording substantial economic growth in excess of 8 per cent. This growth could possibly be
constrained by the lack of both quality and quantity of public services supplied by the Government and
its various authorities. Hence there has to be all-round improvement in investment in and delivery of
public services.
The new focus of economic reforms has to be the empowerment of the public sector to do what it is
supposed to do: public services.

22 BIS Review 112/2006