Mohan (2008) presents a comprehensive review of the macroeconomic policy developments in India over the past four decades with a particular emphasis on the last two decades. India transformed from a tightly controlled socialistic economy to one of the emerging market economies with accelerating growth. Before the transformation, the Indian economy was characterized by many regulations and controls, the nationalization of banks, and fiscal deficits that were financed by the central bank. The economy was in a low growth state, and the inflation rate was high. After the transformation, fiscal deficits have been reduced, and their direct financing by the central bank is banned. Monetary policy has been geared towards achieving a low and stable inflation rate. The critical regulatory changes took place after the balance of payments crisis of 1990–1991. My comments are mostly directed to the current challenges rather than to India's historical experience. The growth acceleration from 3% in the 1960s to 1980s, to 5% in the 1990s, to 8% after 2003, as shown in Mohan's Table 1, is impressive, but still not perfect. It is impressive because it shows steady improvement as various reforms were taking place. It does not seem perfect because, first, the growth rate did not jump to a high range, say 8–10%, immediately after the critical set of reforms in the beginning of the 1990s, and, second, in the near future, the growth rate does not seem likely to climb up to the 10% level that China has been able to achieve in the last decade. Why couldn't India achieve double-digit growth, if China could do it? The frustration is understandable but it may be important to recall some of the other growth experiences in Asia. Japan achieved double-digit growth in the 1950s and 1960s. South Korea, Taiwan, and Singapore achieved near 10% growth in the 1980s and 1990s. They all relied upon manufactured exports and climbed up the ladder of sophistication as they grew. Sustained 10% growth was possible only because those countries enjoyed export booms and their export items went from low-tech to middle-tech, and eventually to high-tech goods, as they chased the country just ahead of them. This view is known as the flying geese pattern of Asian growth. In a sense, 10% gross domestic product (GDP) growth was helped by very high (much higher than 10%) growth in the exports of toys and shoes followed by motorcycles and TVs, and then petrochemicals, steel, and automobiles. India somehow did not rely on manufacturing as much as other Asian countries. It is only recently that Indian exports of automobiles and steel seem to have attracted attention. India actually did not seem to have thrived in various low-tech and middle-tech manufactured goods. The recent boom is in the information and communications technology (ICT) sector, and the services sector that, in general, were not traditionally regulated by the government. Therefore, the Indian growth path is not following the typical East Asian flying geese pattern. It is hard to predict whether India is capable of achieving and maintaining a growth rate of 10% plus in the near future. It may leap-frog other Asian flying geese to become the leader in the service sector, or it may fall behind with stiff global competition in the ICT sector as well as in automobiles and steel. On the fiscal policy front, the key challenge is to maintain the good performance of the last 10 to 15 years. Except for 2000–2004 period, the central and state government revenue deficits have been below 3% since 1990, and in terms of primary balance, the central and state governments combined, it is currently virtually zero (Mohan, 2008, Table 4). However, when compared with other East Asian emerging market countries, India's fiscal deficits and public debts are still the highest (Mohan, 2008, Table 6). The challenge now is to keep the good trend of cutting down subsidies and enhancing tax revenues on track. In addition, the central-state tax system must be rationalized. State borders should not be hampering interstate transportation. Taxes on trucks and other transport should be collected in ways that do not involve physically stopping the transports at the border. Introducing value added tax that would be uniform across state borders would also be preferable. Openness – lower tariff rates – is also important for further integrating the Indian economy with the rest of the world. India is still one of the countries with a high average tariff rate (about 10% of the value of imports; see Mohan, 2008, Table 7), and enhancing competition through imports will be a driver for productivity growth in the domestic industries. If any expenditure is to be increased, education and infrastructure are high on the agenda. Better pay and the monitoring of the performance of elementary and secondary school teachers would enhance growth in the medium term. It is striking that higher education in India is known for its excellence, while elementary and secondary schools are falling behind schools in countries at a similar development stage. Infrastructure investment in railroads, highways, sea- and airports, telecommunications, and utilities should be upgraded to invite more foreign direct investment. The monetary policy framework of the Reserve Bank of India (RBI) is now very close to the best practices of emerging market and advanced countries. Namely, price stability is emphasized and is given higher priority than other concerns, like output growth. Should India adopt flexible inflation targeting to cement the current low inflation rate by an expressed numerical commitment? I think the answer is yes. Inflation targeting has been adopted in many emerging market economies as well as advanced countries with general success. The reason is that in order to introduce the inflation targeting framework, it is a key to have an accord with the fiscal authority for cooperation, as in the UK, New Zealand, and Australia. Therefore, the de facto independence of the RBI will be enhanced. Moreover, the framework will help the Bank to maintain inflation expectations at a low and stable level. The last monetary challenge is exchange rate management. It has been shown both in theory and in reality in the episodes of the Asian currency crisis that an independent monetary policy, a fixed exchange rate, and the free flow of capital across borders (the impossible trinity) cannot be sustained. Thus, keeping the exchange rate flexible is important. The question is how much flexibility it should be allowed. If it is completely free floating, then the small emerging market economies may attract too much capital flows in 1 month and suffer a sudden reversal in the following month. Excessive management of the exchange rate, on the other hand, may result in large interventions, which in turn may produce enormous foreign reserves. If Indian policy-makers worry about a potential currency crisis, they can turn to the lessons of the Asian currency crisis of 1997–1978, as well as the Mexican, Brazilian, and Argentinean crises. In most cases, current account deficits became large (around 8% of GDP) accompanied by a real exchange rate appreciation, relatively large short-term external debt (which exceeded foreign reserves), high interest rates and a stable nominal exchange rate. Although no systematic early warning indicator has been successfully developed, these rule-of-thumb indicators may be good enough to avert a potential crisis. Of course, the biggest challenge is politics. There is a broad consensus about what to do in the face of the challenges mentioned earlier. If a strong, stable government is born and if it implements all the reforms proposed in this paper and other papers in this issue of the Asian Economic Policy Review, the future of the Indian economy will be as bright as ever.