They had a well-defined world view and equally well articulated strategy. The strategic objective was to create a self-reliant economy independent of international capitalist blocs. Given the weakness of the entrepreneurial class and an absence of well-functioning capital markets, the state was assigned the role of accelerating capital accumulation and the state was also required to become an entrepreneur particularly for creating heavy and basic industries. Consequently, the public sector became the leading agent for industrialisation.

Equally, the public sector also enabled us to create an integrated national market by following the import-substitution basedindustrialisation strategy which also meant selective delinking from the world economy. This strategy was chosen after a fierce national debate between the protagonists of "steel first" or "textile first".

The heavy industry-based industrialisation or "steel first" strategy further articulated by Prof Mahalanobis won the day as this also provided the basis for achieving yet another national aspiration, namely, creating defence capabilities for maintaining the sovereignty and integrity of our new nation.

This strategy did pay off. It substantially accelerated growth rate, it created the social and industrial infrastructure and the technological base for defence production as well as in the sophisticated and strategic nuclear and space fields. In implementing the strategy one of the major problems soon to be faced was the failure on the agricultural front, which led to our dependence on PL-480 food imports. This strategic shortcoming was quickly overcome by Indira Gandhi by launching the Green Revolutionto achieve the objective of self-reliance in food security.

These achievements are outstanding when compared to our own historical standards, but seen in the context of the contemporary experience of other economies of Asia, such as, China, Japan or Korea, our performance is perhaps far short. India, at the time of Independence, had almost similar levels of per-capita income as that of China or that of Korea but since then both these economics have surpassed India in terms of per-capita incomes or even in terms of share in the global economy whether in manufacturing output or in global trade.

The per-capita income in Korea is $10,550 while ours is still $390. The Gross Domestic Product of China in the year 1997 was $825 billion, more than two times ours, has been achieved through a sustained growth rate of more than seven per cent per annum over the last two decades. The per capita income growth-rate of other miracle economies of south-east Asia has been two to three times higher than ours for more thanthe last few decades.

Comparison with these economies is also not very flattering for us in the area of human development index. Although we have made gains in life expectancy and in other indicators, once gain we are behind compared to these dynamic economies of Asia in human development index. Similarly, while we see an outstanding performance of these economies in overcoming poverty, we have the dubious distinction of housing the world's largest number of poor.

However, while taking about such international comparisons there is one interesting and an important point to which I want to invite attention, namely, although in the levels of living as measured in per-capita income terms or human development index terms, India lags behind, in terms of an indicator of equity such as `Gini Index' which summarises the distribution of income or consumption of an economy, India is in the top 10 amongst all developing countries.

The latest World Development Report 1998 of the World Bank shows that our incomedistribution is perhaps less inequitable compared to the income distribution obtained in the United States and in some developed economies. There is also a recently published paper by Prof Hashim who is a member of the Planning Commission showing that in India the "Gini Index" may have been, in fact, improving over the plan periods, albeit, marginally.

Given the quality of data regarding income or consumption distribution, I would argue that we can at least maintain a weaker version of this finding, i.e., there is no evidence that the income distribution has deteriorated.

This is an important point because in the opinion of many of our left analysts, India is considered to be one of the worst suffers from income inequalities and it is said to be getting worse. Obviously, data do not support this. This brings us to the heart of our economic problem, namely, the curse of our poverty is the low per capita income due to the comparatively lower growth rates. In other words, what India faces is the problem oflow productivity, across the sectors as well as of the low growth in this productivity.

I would submit that this is the crux of India's persistent cruel poverty.Now an important issue is how did we get in this situation if otherwise, the development process seems to have done the trick, namely, that of transforming a low savings economy into high-savings/high-investment economy.

During 50 years of our planning, the rate of savings and investment which were only 10.4 per cent and 10.2 per cent respectively in 1951-52 have been more than doubled to 23.1 per cent and 24.8 per cent respectively by the end of Eighth Plan. In other words, the Indian people have made great sacrifices for making large investments but the total rate of return on these resources has not been increasing either to catch up with the dynamic developing economies or making available resources to eradicate poverty.

I think many factors have contributed to this low productivity and low growth impasse. The first strategic error was therelative neglect of international trade. By neglecting international trade we forewent the possibilities of exploiting productivity enhancing exchanges. In the manufacturing sector we opted for an across-the-board import substitution strategy where we sought to produce everything in a production chain whether the product was a commercial vehicle or a steel mill.

And by this, the weakest link decided the fate of the strength of the whole production chain. We entered into production of a number of activities in which we just did not possess the competitive edge. It resulted in a loss of efficiency for the entire industry. For instance, forcing the Indian fertiliser industry to use only Indian designed catalyst, the entire fertiliser industry's productivity suffered.

Same was the case for electronics sector where our software industry took time to take off because of the insistence on the use of domestic computer hardware. What all these examples show is that we just did not allow international trade toenlarge the possibilities of using our own resources more efficiently and we ended up taxing our own productive sectors.

Even in foreign trade we concentrated on socialist economies and neglected the trade linkages with emerging dynamic areas particularly that of East Asia including Japan. Had our external trade been linked to rapidly growing Japan, the whole economic growth trajectory could have been so different.

Yet another strategic limitation was the relative neglect of agriculture. Professor Arthur Lewis, a distinguished Noble Prize winner has so clearly shown that is it the productivity of agriculture which decides the gains from economic development. Not only did we neglect investments in agriculture and in related activities such as irrigation, but we also manipulated the terms of trade against agriculture. This was a copy book revisit to the debate between Joseph Stalin and Bukharin. I think the arguments of Sharad Joshi has considerable power when be argues for liberating India's agriculturalsector from the present regime of controls.

I think we missed the exciting possibilities of employment expansion from value added agriculture. This neglect also had a profound impact on the growth process itself. Prof. Sukhamay Chakraverty has shown that the failure on the good economy led to stop/go policies regarding public investment and this induced sharper business cycles, thereby reducing the underlying growth rate.

(To be conluded) This is the text of Union finance secretary's`Pune Spring Lecture'