India is doing well, but perceptions about India are doing better. Never in the 58 years since Independence has the country been viewed with as much optimism as in the past three or four years, especially in the past year. American and European newspapers now routinely mention India as being among the most dynamic economies in the world. At a meeting I attended in Singapore earlier this year, Lee Kuan Yew-the first prime minister under whom the city-state became a financial giant and who was known for his pessimism about India in the past-declared, "China and India will shake the world. In some industries, these countries have already leapfrogged the rest of Asia." And he argued that in terms of global corporate presence and reputation, India was ahead of China.

Part of this hype is justified. During 1990-2003, only nine countries-of the 152 on which the World Bank gives detailed data-grew faster than India; during 1980-90, 11 countries did. But there were only two countries, China and Singapore, which grew faster than India during both these periods. In terms of foreign exchange reserves today, India is behind only four countries: China, the US, South Korea and Japan. This is truly extraordinary for a country that lived with an incipient balance of payments crisis for an unrelenting 45 years from 1947 to '92.

The causes of this success are numerous. The rise in India's savings rate in the '70s laid the foundation, the reforms of the '90s, especially the opening up of the trade, unleashed energies throttled by an anachronistic bureaucracy with fallacious ideas about how economies work and, finally, there were three fortuitous political factors.

First, India's outsourcing business got an unexpected boost during last year's US presidential race. Early in his election campaign, John Kerry had criticised the American companies that outsourced work. He later backtracked, but a host of commentators on US TV picked up on this and vilified the companies that outsourced jobs for greed of profit. A number of small American companies that recognised the greed of profit in themselves, but did not know of this great opportunity, were alerted. For the Indian companies doing back-office work, this was free advertisement on American TV, something they would never have been able to afford on commercial terms. This sector has surged over the past year and is becoming self-sustaining. Last month, at a call centre in Kolkata, a young lady explained to me that her job was to telemarket to American companies to have their telemarketing work done from India.

Second, the rise in global terrorism and a creeping fear of China have given US politics an India tilt. China's growing might and an occasional glimpse into its thinking-Chinese Major-General Zhu Chenghu declared last month that China would use its nuclear arsenal against the US if it meddled in a war between China and Taiwan-makes it clear that the current unipolar world is nearing its end. From the American point of view, if the world is not going to be unipolar, with the US as the pole, then it is better for it to be multipolar rather than bipolar. Hence, the American interest in India-it is democratic, transparent, constitutionally secular and nuclear.

Global politics is a risky game. At the same meeting in Singapore, a prominent politician from the country explained that despite common roots with China, Singapore was wooing India because it was worried about China's "bear hug". In the world of big-power politics, India has large gains to make from good relations with the US, but has to be careful not to be smothered by a bear hug.

The third piece of luck is Manmohan Singh. The BJP government was taking India down the path of religious fundamentalism and right-wing extremism. Fortunately, the Indian electorate, including the Hindu electorate, recognised that this stridency in the name of Hinduism was hurting not just India but, paradoxically, Hinduism. And this paved the way for a statesman prime minister.

Among economists, there is one concern regarding this Government-the influence of the Left Front. To me, this influence is an advantage. It enables the prime minister to play the democratic card ("my allies won't allow this") and keep India out of tricky partnerships in international politics. Moreover, the Left does have a track record of genuine pro-poor and secular commitments. Its problem was that it got its industrial policies wrong. But there is evidence that its elected leaders, in contrast to the unelected party officials, are learning rapidly. The West Bengal Government declaring it sector work as an "essential service" and managing trade unions so that they support downsizing-500 employees of the Hindustan Development Corporation were recently retrenched without protest-is reminiscent of Chinese capitalism, popularly known as communism.

Where India has not done well is in the fact that a quarter of its population is below the poverty line and inequality is on the rise, as is unemployment. This requires effective government intervention. These features do not get much global attention and help maintain the perception of buoyancy. One of the hardest parts of development is to influence people's perception. As this has come to us without asking, we should try to make our performance catch up with it.

The writer is Professor of Economics and Director of Program on Comparative Economic Development at Cornell University, US.

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