"Unless we put our fiscal house in order and improve the public delivery system, no amount of macro-policy reforms by themselves will be sustainable or yield permanent results," he said, delivering the 16th BD Deshmukh lecture on `Indian Economy in the 21st Century: A New Beginning or a False Dawn'.

If a large number of schools, primary health centers and universities continue to underperform amidst two or three hi-tech cities and new business schools, there would be a gigantic loss of human resources, Mr Jalan said.

"It is simply a question of relative proportions and inextricable linkages between the public good and private progress," he said, adding, "The worst affected victims of fiscal stringency and the atrophy of the public delivery system were likely to be the poor, the unemployed and the illiterate".

It would be a grave mistake to misinterpret the need for economic reforms to mean a lesser role for government or public policy in widening the opportunities for and creating a positive environment for equitable development, he added.

Pointing to the experience of several transitional and emerging market economies, he said that economic reforms were by no means a sufficient condition for growth and development.

"Successful economic reforms must result in strengthening the ability of governments to do what they need to do to help generate higher growth, productivity and revenue. On the public-private dichotomy, Mr Jalan said that most of India's public resources were dissipated in the payment of salaries or interest rates on past debts. This left little or no resources available for the expansion of publicly supported services in vital sectors.

"The two elements of fiscal deterioration and inability to provide essential services are interlinked," he said, adding that even after 50 years of independent administration, problems in the management of public resources at different levels had only become more and more intractable.

In addition to economic reforms, it is also important to embark on an urgent programme to 'revitalise' governance and public delivery systems at all levels of government - the state, the Centre and the district, he said.

On the other issues that needed immediate attention, he said that there should be initiatives for the full disclosure of all financial decisions made by the government and its multifarious agencies.

"Fiscal empowerment is the most difficult task in view of the dead weight of the past, but it can no longer be avoided," Mr Jalan added.

On the scarcity of domestic capital, Mr Jalan said that it was no longer a binding constraint because of international capital mobility since it ensured flow of global resources to countries that could show high growth and returns.

"It is possible now for India to take advantage of a vicious circle of higher growth, external capital inflows and domestic savings, which in turn can lead to further growth," he said, adding that domestic savings continue to be important for development.