Prime Minister Manmohan Singh’s speech to the World Economic Forum’s India meeting was remarkable for its clarity. He laid out the priority in this time of global recession: “a return to high growth”. But, as he went on to point out, India cannot rely on world demand recovering on a convenient schedule. So “our strategy therefore must aim at sustaining a high rate of growth on the strength of strong domestic demand.” In 2005, at the same meeting, he had said that India was held back by the intellectual heirs of socialist-era protection — “the sceptics, the worriers and the critics”, who continue to be “prisoners of the past”. Any remaining barriers to a resurgent India, Singh pointed out then, exist within. That remains true today as India attempts to use domestic demand to get itself out of the crisis. Because the biggest stumbling-block to domestic demand and saving being mobilised in the degree required is the lack of financial sector reform.

That same cadre of professional sceptics continues exist, and has attempted to stunt the natural growth of the financial sector in India. But the arguments that they make for this grow weaker with every fresh piece of evidence. The recession, for example, which some might claim — since it originated in irresponsibility in the financial sector — is an argument against further reform, is actually an argument for it. It has clearly shown that India is, in particular, reliant on internal resources. But those resources will need channels so that they can be used properly. The wasteful financial infrastructure that we have so far simply will not cut it. Fortunately, the intellectual heavy lifting on deepening and widening the channels has been done: the Percy Mistry and Raghuram Rajan reports lay out the steps that need to be taken.

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