India's growing economy, the tenth largest in the world, is projected by some analysts to become its third largest within a decade if the nation can overcome the formidable challenges it now faces. 

By all accounts, India?s transformation has been impressive.  Fifteen years of market reforms have contributed to an average annual economic growth rate of between six and seven percent since the 1990s.  And the government hopes to boost growth to 10 percent per year in the next decade.

Although the World Bank put the country?s poverty rate at about 28 percent, India has reduced poverty among its one billion people by about 10 percent. 

A New Outlook

According to Mira Kamdar, a senior fellow with New York?s World Policy Institute, India?s transformation is coupled with a new outlook.

?I?ve been going there since 1960 and I have never in my life seen the kind of sheer confidence and enthusiasm in the future of the country that I have seen these past few months, especially among India?s young people.  They really feel that the sky?s the limit.  They really feel like, ?We can do anything we set our minds to do.?  That is something that is new and exciting and may just make all the difference,? says Kamdar.

Some analysts call the changes that have occurred both in India?s economy and public mood revolutionary. 

Stephen Cohen, a foreign policy analyst at the Brookings Institution in Washington, says India?s high-tech economy, which includes Internet, software and computer industries, has partially contributed to this new environment.  He goes on to say, ?Superficially, at least psychologically, everybody?s attracted to India?s high-tech sector.  That created a psychological transformation in the world?s view of India and in Indians? view of themselves.  But actually what is happening is that Indian manufacturing, especially light manufacturing and even the auto industry, is moving very quickly.  And there?s a huge amount of investment there coming from abroad as well as from India.?

In the past few years, India has almost doubled its share of foreign investments in the country to about $5 billion.  Much of that money is going to the manufacturing sector, which contributes about 27 percent to India?s gross domestic product, or G.D.P., according to the World Bank. 

But some observers say direct foreign investment has never amounted to more than a few percentage points of India?s G.D.P.  The country?s economy relies more heavily on the services sector, which accounts for nearly half of the country?s G.D.P.  And agriculture accounts for about 21 percent of the G.D.P. and employs more than 58 percent of India?s workforce.

The Rural-Urban Divide

Devesh Kapur, a professor of government at Texas University at Austin, says this reflects a widening gap between India?s rural and urban populations, both in terms of wealth and unemployment.

?If you look at what?s called ?the organized sector,? which is about 12 percent of employment- - and this is the privileged sector, where people have pensions, health insurance, all of these things- - that?s barely about a 6th of the country?s employment [i.e., employed population].  And employment in that group is not growing, which is quite troubling, given that India?s [economic] growth rate for basically the past fifteen years has been slightly above 6 percent,? says Kapur.

Unemployment, poverty and overpopulation and are only a few of the challenges India faces in its economic renaissance.  Many analysts argue that to become the third largest global economic power in terms of G.D.P. - - after the European Union and the United States - - India needs to accelerate efforts to rebuild its aging infrastructure, especially its transportation and power networks.

Reforming Education

More urgently, analyst Devesh Kapur says the educational system must be reformed to equip the workforce with the skills necessary to move India into the ranks of developed nations.

?Education in India is a complete mess, especially higher education,? says Kapur.  ?India, in some ways, is living off its past.  The government is politically unable to give a broad, good education to the vast bulk of its population.  And this has effects in two ways.  One is that you don?t have the sorts of broad based skilled personnel.  And second, of course, it has tremendously negative effects on equity, which in the medium run, could invite a backlash against liberalization and against reforms.?

Most experts agree that India?s educational system is under funded and undersized to sustain the country?s expanding economy in the next two decades, especially given that many of the nation?s best and brightest students end up working abroad, leaving behind a workforce short on skill and expertise.  

The Fruits of India?s Labor

Given these problems, many analysts say India needs 15-to-20 years before it can fulfill its potential as a major economic power.  But most agree that India?s economic boom can be sustained if the country continues on the path of liberalization and reform. 

If it succeeds in maintaining this momentum, the World Policy Institute?s Mira Kamdar says India will be a model for the rest of the developing world.

?If it can pull off an economic growth miracle, one that would transform it into more of a developed country by 2020, [which] is the target of the government, it will not only be a feat that will improve the lives of hundreds-of-millions of people in India, but it will also be a model for developing countries around the world of a way to reconcile economic liberalization, growth and globalization with providing a decent life for the maximum number of people,? says Kamdar.

As India continues its transformation, some analysts say its goal of achieving a 10 percent economic growth rate may be unrealistic.  They point out that its economy is closely tied to a number of factors beyond its control, including global inflation, rising energy costs and the economic performance of one of its largest trading partners, the United States.

This story was first broadcast on the English news program,VOA News Now. For other Focus reports click here.