With well-trained, English speaking, and cost-competitive professionals, India has created a niche for itself as the world’s back-office as well as a global software centre. The BJP coalition’s unexpected defeat in the general elections reflects the unhappiness of rural voters who have not benefited from the liberalisation. This may cause the new Congress government to be more circumspect about pressing ahead with reforms, although optimistic commentators argue that the voters are pressing for faster reforms rather than slower. Whether or not that is so, the policy of liberalisation commands bipartisan support, and is likely to continue. After all, the new Prime Minister, Dr Manmohan Singh, was the architect of the initial economic reforms in the early 1990s. He has appointed as Finance Minister Mr Chidambaram, who is also a reformist and a former Commerce Minister and Finance Minister. I am therefore hopeful that the thrust of liberalisation will continue, and India will play increasingly a prominent role like China’s in the regional and global economies. Closer to home, the prospects for Southeast Asian economies are also looking better. The region initially struggled as political and security concerns deterred foreign investments and distracted  BIS Review 33/2004  1  governments from tackling serious economic problems. But Southeast Asia has stabilised considerably in recent years. Governments are responding more vigorously to the threat of terrorism and restoring order and confidence. The political upheavals that swept across the region have also subsided, allowing governments to focus their attention on fostering growth and development.

It is only by removing all of the old layers that the painter and decorator can achieve a robust finish. Removing these one by one will simply reveal old cracks, open up old loopholes. Tax reform has been successful when it has recognised that fact and has started simple and afresh. Regulatory reform is no different. For financial regulation, that means asking some big questions. Is risk-weighting of bank assets worth the costs? Are bank’s internal risk models more regulatory trouble than they are worth? Does complexity unduly advantage large incumbents over small new entrants? Are armies of supervisors and compliance officers a sign of success or failure? These questions should form the new regulatory battleground. This could transform the regulatory framework, for the simpler, for the better. It could do the same for taxation. Some will argue that we face a Canute-like task in turning this tide – and, like Canute, that it will be in vain. But, unlike the seas, this complex tide is ours to turn. With the economy struggling for breath, the time has never been better. References David, P (1985), “Clio and the Economics of QWERTY.” American Economic Review, 77(2): 332–337. Gigerenzer, G (2007), “Gut Feelings: Short cuts to Better Decision Making”, Allen Lane. Government Accountability Office (2005), “Summary of Estimates of the Costs of the Federal Tax System”, available online at http://www.gao.gov/new.items/d05878.pdf. Haldane, A and Madouros, V (2012), “The Dog and the Frisbee”, paper presented at the Federal Reserve Bank of Kansas City’s 36th economic policy symposium.