A world to win over

India must actively make it up to global investors, not suspect Western policy intent

Exactly a decade ago, Bimal Jalan famously declared in his farewell interview as governor of the Reserve Bank of India (Financial Express, August 18, 2003): "there is no longer an external constraint to (India's) growth". A decade later, talk of an "external constraint" to growth has resurfaced. To an extent, it is the consequence of the trans-Atlantic financial crisis and the global economic slowdown, but it is also a manifestation of internal problems.

Jalan's 2003 declaration was doubly significant. First, because it ended half-a-century of worrying about an external payments gap. Fed by export pessimism and the natural resistance to foreign capital of a newly independent post-colonial nation, India's plans always assumed there would be an external constraint to growth. Second, this enduring fear of policymakers was reinforced by the economic crisis of 1991, the Asian financial crisis of 1997-98 and the post Pokhran-II economic sanctions.

By 2003, India had overcome all these challenges. As global confidence in the Indian economy's growth prospects grew, so did India's foreign exchange reserves. A modest surplus had been registered on the current account and external debt was at record lows. Jalan was pleased to draw attention to this happy fact as he left Mumbai's Mint Road.

The return to power of the 1991 economic policy "dream team" further boosted global confidence in India and India's confidence in itself. The robustness of India's external economic profile in the mid-2000s encouraged Prime Minister Manmohan Singh to go a step further and proclaim a new principle of Indian foreign policy. He told the India Today Conclave in February 2005, "I submit to you for your consideration the idea that the global environment has never been more conducive for India's economic development than it is today. The world wants India to do well... our real challenges are at home."

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