Make no mistake about it; the first decade of the new millennium will be hailed as India’s – a decade in which not only will India clock the highest per-capita growth rate among all major economies (obviously including China) but also when the level of this growth will exceed 7.5 percent per annum.

Wild dreams, you might say; actually, hard reality, and reality made harder by the fact that the forecast is not dependent upon the government, whatever its' color, making any decision voluntarily. The key word is voluntarily - because there are several reforms that the government of the day will initiate because it will be compelled to do so.

The factor making all this possible is globalization. The reforms that timid governments do not take, will be "forced" upon them by the pressures of competition. Take the case of small scale reservations. India lost several employment and income benefits because of its Luddite policy of prohibiting large investments in sectors like toys and other 1000 odd items. China took advantage of India's stupidity, and today has more than two-thirds of the world's toy market. Why did India have this policy - nobody knows, except you can bet that the licensing and the reserving authorities (political parties and bureaucrats) make large amounts of money dispensing this "in the name of the poor" policy.

Note it is not lack of knowledge that has prevented any action. India is proud of its committees and the Abid Hussain committee recommended some years back that the small scale reservation policy be dismantled. India always takes its time and the next year or two should see the pressures of international competition force us to open up.

Another uniquely Indian bad policy is one of strangulating Indian industry through exceptionally high interest rates. Presently, with inflation perilously close to zero and expected to stay there for some time to come, Indian industry is borrowing at about 10 percent real, the highest rate in the world for any non-crisis economy. And it has been paying close to such rates for the last six years! Any wonder then that the much touted reforms of 1991 did not produce a higher industrial growth rate.

A little known fact is that Indian industry has grown at the same rate post reforms as it did pre-reforms! How did this happen? Simple the policy makers forgot the financial and macro sector as they concentrated on getting the micro trade sector right. Making matters worse was the family owned ostrich Indian industry which did not care about high interest rates because they could borrow from state owned banks (the babu-license raj) and never pay up. Instead, they concentrated on the prevention of trade reforms and the perpetuation of high tariff rates - tariff levels that are the highest in the world today, higher than Pakistan, Bangladesh, Sri Lanka... and Ethiopia.

But the game has been well exposed now - and the professionally managed industry sees no reason to subsidize the inefficient family wallahs. Industrial growth has stagnated to near zero levels, and the government, you guessed it, has even a committee report suggesting discontinuance of the high real interest rate policy - and this recommendation despite pressures from the usual lobbyists who believe that real interest rates are too low in India!

One policy which awaits a final clean up is India's tax system. Presently, there are more income tax exemptions than rich taxpayers in India. The tendency of every born again policy maker is to raise tax rates to raise revenue; this is outdated politics and terrible economics. Exactly the opposite is desirable. A policy rich in revenues is the following - no exemptions whatsoever, and tax rates of 5, 15 and 25 percent, and a reduction in the corporate tax rate from 35 to 25 percent.

The reason for genuine optimism is that the Indian economy resembles an onion - you peel off a layer of distortion, and you cry, because there are so many layers left. But it is precisely these layers of distortions - three of the more important ones have been detailed above - which will lead to India growing at a faster pace. Each 1 percentage point reduction in the real interest rate is expected to lead to a 0.35 percentage point increase in the GDP growth rate. Interest rate reforms should decrease the lending rate by at least 400 basis points or a 1.4 percent increase in GDP growth. Small scale de- reservation and an enlightened tax policy will easily add another 1.6 percent to GDP growth. Thus an 8.5 percent GDP growth (increase of 3 percent over the twenty year average of 5.8 percent) is in India's future; and it will happen sooner than later. Why is it bound to happen? Because the Chinese bamboo is pinching our collective bottoms, and the pressure to grow fast to reduce the gap with China will only grow larger.