The year 2009 will continue to be a challenging one for both financial markets and economies around the world. Until 15 September, when investment bank Lehman Brothers filed for bankruptcy, emerging economies were paying an acceptable price for their own excessive reliance on debt and obsession with high growth to the near exclusion of all else. But, after Lehman Brothers failed, fear and caution rose to alarming levels in the developed world. The flow of funds to the developing world ceased. This has hurt their economic prospects as well.

The falling price of commodities is a consolation for many developing countries. This decline in commodity prices allows them to stimulate economies without worrying about inflation now. It will be a mistake, however, to think that the response to this global crisis is all about fiscal spending and lower interest rates.

One big reason not to stop with these is that they contributed to the boom earlier in the decade and the subsequent bust in the last two years. Particularly in India, fiscal spending is subject to wastage, corruption and leakage. Accountability in government expenditure is non-existent. Therefore, these must be accompanied by measures to enhance accountability and voluntary disclosure of effectiveness of measures to the public. The top leadership should lead this initiative.

Further, the best way to attract more investment and capital is to put economic reforms on overdrive. The global crisis in capitalism has led to an unfortunate clubbing of financial capitalism with economic liberalization. Caution and regulation are warranted on the former but on the latter, India needs more, a lot more, and not less.

It is unfortunate that the United Progressive Alliance (UPA) government, while failing in its responsibility to pursue real reforms for the real sectors of the economy, found time and inclination to interfere with prudential regulation in the financial sector. Given that the losses and failures in the financial sector are, by default, borne by society and the exchequer, it is a principle of natural justice that the state has at least an active oversight role in this sector.

However, this does not absolve reformers of the responsibility to make the case for continued withdrawal of the state from legitimate economic activity and to facilitate the same among willing individuals and institutions operating within the laws of the land. Economic reforms are more than raising the limits for foreign direct investment in insurance or in allowing foreign retail chains. In fact, in the order of priorities, they come way behind and pushing them through does not amount to “jumpstarting" reforms. At least some of these neglected areas of reforms are worth reiterating.

The government needs resources to spend more on the poor. Privatization of government enterprises is one source of revenue. Keeping them in government control helps only a few. Many would benefit if the government sells them off. Reformers across political parties must affirm their support to this. Regardless of what one might say about the role of the state in a capitalist society, running business enterprises is not one of them.

If this is a landmine for political parties, then education reforms, legal reforms, agricultural and real estate reforms must be pursued. Education needs to be thrown open with the government acting as a regulator and facilitator. Government schools can be handed over to the private sector. Competition will keep greed and profiteering in check as it has done in many other sectors.

The judicial process has to be speeded up so that confidence in the due process of law is restored. Indeed, the less time people spend in settling disputes and grievances and more in enhancing incomes and livelihoods, the more they will add to the national output as well. Legal reforms thus have an understated impact on raising potential economic growth.

Free movement of goods and the establishment of a single market in India have stalled. These must be allowed to reach their logical conclusions. That will empower farmers and reduce suicides more than loan waiver schemes.

The real estate sector is largely controlled by extra-constitutional elements. Artificial shortage created by floor space restrictions has made homes unaffordable except to the very affluent. This has also divided the country socially. The government needs to remove these bottlenecks.

All reforms and changes, by nature, hurt those that have benefited from the status quo. They will protest and protest loudly. The media will lend its support to some of these elements too. But the true test of change agents is their ability and willingness to lead it and take it to its successful conclusion. If leadership is not about change, then what is it about?

V. Anantha Nageswaran is head, investment research, Bank Julius Baer and Co. Ltd in Singapore. These are his personal views and do not represent those of his employer. Your comments are welcome at