India on recovery trail, but challenges loom

MUMBAI Fri Nov 20, 2009 11:07am EST

A Delhi Metro Rail Corporation (DMRC) employee walks inside a tunnel on the phase II stretch between Jangpura and Lajpat Nagar stations in New Delhi, October 12, 2009. REUTERS/Parth Sanyal

A Delhi Metro Rail Corporation (DMRC) employee walks inside a tunnel on the phase II stretch between Jangpura and Lajpat Nagar stations in New Delhi, October 12, 2009.

Credit: Reuters/Parth Sanyal

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MUMBAI (Reuters) - India evaded the eye of the storm that sucked the global economy into the worst downturn since the Great Depression, and has emerged, along with China, as a leader of the nascent worldwide recovery.

The stock market has surged more than 70 percent this year, growth in Asia's third-largest economy is expected to be 6 to 7 percent this fiscal year and accelerate in 2010/11, and a rash of companies are raising billions of dollars to fuel expansion.

The rousing re-election of the Congress party-led government in May freed it from having to depend on communist allies, lifting hopes of an acceleration in long-delayed financial reforms and infrastructure investment.

Still, questions linger.

The government is hamstrung by a stubbornly high fiscal deficit, consumer spending is being driven by stimulus measures that are unsustainable, and the global demand that drove India's once red-hot outsourcing sector is slow in returning.

A lack of inclusive growth and a volatile region means there are internal and external security risks, and corruption and India's infamous red tape are stalling infrastructure projects needed by a rapidly urbanizing population of more than 1.1 billion.

These will be among the issues discussed during the fourth annual Reuters India Investment Summit on Nov 23-25, when top executives, bankers and officials will discuss their plans and the broader opportunities and challenges for the world's second-fastest growing major economy.

"Policy reforms have been very, very long in their coming in our country, and that could be a significant drawback in India reaching 10 percent growth," said Sashi Krishnan, chief investment officer at Bajaj Allianz Life Insurance Co.

Poor infrastructure, regulation, and corruption hinder business and economic growth in India, a top official at the World Bank's private sector arm said recently.

Overseas investors have plowed in more than $15 billion into Indian stocks this year, but the speed of the market's rise has raised fears of asset bubbles, and the central bank has taken initial steps to tighten monetary policy.

Indian firms have raised more than $17 billion via shares sales this year on the market rebound, and Birla Sun Life Insurance estimates possible stake sales in state-run firms can fetch the government $18 billion over the next 15 to 20 months.

(For summit blog: blogs.reuters.com/summits/)

(Editing by John Mair)

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