Friends, a discussion on economic reforms in India tends to look at what the Indian government in New Delhi is doing. Investors and even scholars often base their judgement on the pace and quality of reforms by assessing the actions of the Central government. There cannot be any doubt that the overall policy environment has to be created by the Centre. For instance, some of the constraints to growth in India lie in the policies concerning the financial sector, international trade, privatisation of public sector enterprises, legal systems, taxation, and fiscal issues like subsidies. The Central government has to continue reforms in all these areas to improve the environment for growth and development. None can underestimate the catalytic role played by the policy framework created by the Centre.

But the role of the Central government in the Indian reform process ought not to be exaggerated either. For example, fiscal reforms, easily the most important macro-economic issue, cannot be assessed only in terms of measures outlined in the central budget. Fiscal deficits in the States are as substantial and as relevant. My endeavour today has been to draw your attention to the large and crucial space occupied by two other layers in the institutional framework for reform in India: the State governments and the third tier comprising local bodies or other elected community-based organisations. India cannot sustain high rates of growth and make its people prosper without activating these two layers as well. Indeed, all three have to move in tandem, with each one reinforcing and invigorating the other. If the policy framework at the Centre is the main trunk of the Indian tree of development, the States are like its branches and local bodies and people-based organisations are its roots. The tree can grow bigger and its trunk more sturdy only if the branches are stronger and wider and the roots go deeper into the earth. I can see democracy driving this process in India.

We have put behind us the years when moderate growth rates ensured small islands of prosperity in a sea of poverty. Today, every section of the Indian people aspires for a better life. For the very poor, better life will mean, in their lifetime, perhaps no more than better water, better housing, better schools, and better medical care. The road to that better life is in better governance, and the very poor have awakened to the fact that self-governance is indeed better governance. The 73^rd and 74^th Amendments to the Indian Constitution ensured the democratisation of India’s polity. Out of 227,000 village panchayats, fully one-third are headed by women. The dalits control up to 22.5 per cent of the elected offices. The minorities and the backward castes have also discovered ‘empowerment’. Driven by aspiration and fortified by empowerment, the people of India will reap the benefits of an open and competitive economy. More and more people will share the benefits of growth and development.

The democratisation of India’s economy is underway. And therein lies the reason for our hopes and our dreams.