For many years after independence in 1947, India remained a large and poor country. Successive governments embraced policies that made the state the engine of growth and development, while severely restricting economic interactions with the rest of the world.
India's population is now much larger, and it is still poor--but not as poor as it might have been. More than a decade ago, it embarked on a new course that has led to faster growth and lower poverty. External trade was liberalized, and many government controls on domestic investment were removed. Perhaps more significantly, the mindset of many intellectuals and policymakers changed in favor of a more market-oriented approach, including greater integration with the world economy.
This represents a crucial breakthrough for India's development. As the Nobel laureate James Heckman points out in his recent analysis of the poor performance of the German economy after reunification, new opportunities in technology and trade have raised the cost of preserving the status quo. ``The winners in world trade in the next generation,'' Heckman argues, ``will be those countries that can respond flexibly with educated work forces.''
But how does a country of India's size and diversity go about achieving the flexibility that integration into the world economy requires? Abdul Kalam, India's president since 2002, has stressed the need to build global competitiveness from the ground up--within each of the country's federal states. By emphasizing the federal nature of India's polity, he is directly addressing an issue that has moved front and center in debates over economic reform in an era of globalization.