(Interview to Outlook magazine on the 20^th anniversary of Liberalization, Feb 2011)

To me, 1991 remains a defining moment in India's history. If we gained
political independence in 1947 from the British, we did not win our economic
independence until 1991. Our reforms have been incremental and
slow-painfully slow-but the remarkable thing is that all governments after
1991 have engaged in these slow reforms. But even slow reforms add up and
they have added up to make us the second fastest economy in the world.

Based on my travels in India in the 1990's, I predicted our economic rise in
my book, India Unbound. But even I did not imagine that we would be able to
grow between 8%-9% per year for more than five years. Quite honestly, my
prediction was 7%. But I was benchmarking our future against our Hindu rate
of growth of 3.5% in the 1970s and the rate at which the industrial
revolution took place in the West at 3%. So, 7% seemed revolutionary in the
nineties. It is really quite astonishing what we have achieved in the past
20 years.

But it is a story of "private success" and "public failure" The private
sector has returned the compliment to liberalization. Once the shackles were
lifted it went on to create dozens of world class enterprises. No one could
imagine that it would happen so quickly. Having grown up in the License Raj,
I could not believe that our companies would be able to go global so quickly
and begin to acquire companies abroad. I think we underestimated ourselves.

The government, however, has not lived up to its side of the 1991 bargain.
If the government was freed from the responsibility of running businesses,
it was expected to focus on governance and infrastructure. And it has let us
down-and let us down very badly. If the government had given high quality
education and health to the poor, our growth would automatically have been
inclusive. If we had high levels of governance we would not have had the
pervasive corruption around us that sits above us like Delhi's smog. Every
transaction with the state is morally flawed, and the poor are the worst
sufferers. Moreover, the reforms are incomplete. If we had reformed
agriculture, real estate and the power sectors, there would have been less
corruption.

Looking at private success and public failure, Indians say, "Our economy
grows at night when the government sleeps". If China's rise has been induced
by the state, India's rise is almost despite the state. A Chinese
businessman said to me that India has risen with one hand tied. He added
that the nightmare of the Chinese leadership is what if that second hand got
untied one day. India could be formidable. Hence, the real task before us
now is to fix the government. More than economic reforms we need to reform
the institutions of the state-the bureaucracy, the judiciary, the police.

An intriguing question about our reforms is that sixty four countries did
the same reforms as India did, but why did India become the world's second
largest economy? I am not sure if anyone really has an answer to that
question. I can only speculate: if you do reforms in a society where you
have groups or communities which know how to conserve and accumulate
capital, then your reforms will have a bigger bang. In India's case, we have
been fortunate to have our vaishya or bania communities-Marwaris, Chettiars,
Khojas, Jains, Aggarwals, Guptas, etc. Our much maligned caste system may
have actually given us a competitive advantage. This is why I was not
surprised to see that more than 50% of the names in the Forbes 2007
billionaires list still had vaishya surnames.