First published: Tuesday, 20 February 2007

This is the time of the year in India when interest in the economy peaks. With the annual union budget presentation coming up at the end of February, one can feel the tempo in the Delhi air.

This financial year, 2006-07, is expected to close with a GDP growth rate of 9.2%, which will make it three consecutive years of over 8% growth. 

Also, Foreign Direct Investment (FDI) into India has risen sharply this year. 

The prime minister's Economic Advisory Council has estimated a figure of $9bn, and, more recently, the commerce ministry suggested that it will be above $12bn.

Handsomely endowed

Whatever the final estimate, it is beyond doubt that it will be a sharp rise over last year's FDI of $4.7bn.

This will also be the year that FDI will exceed money that comes into India as portfolio investment.

Inevitably, there is mention in the press about how India has not only broken away from the relatively slow Hindu rate of growth but may actually be entering into a Confucian growth path.

The comparison is especially interesting to me since in December I came into India directly from China. 

I had gone to Xiamen University, located where China abuts into Taiwan - in fact one can see some Taiwanese islands from the beach next to the University.

The Chinese boom is now so obvious that it needs no statistical reiteration. 

Xiamen airport, which is small by Chinese standards, is a top-class international airport, much bigger than Delhi or Mumbai and more handsomely endowed with shops and traveller facilities than any Indian air terminal.

The city of Xiamen seemed on an entrepreneurial high.

The periodic chimes from the Nanputuo Buddhist temple situated on a slope next to my hotel sounded serene and beautiful because they were so anomalous with the new materialism.

Coming into India a traveller cannot but notice the gap - the poverty is visibly greater and the infrastructure palpably worse

Yet it is evident that India also is on a materialistic high.

It is an irony of our times that if you want to get away from extreme materialism you may have to think of going to Europe or America.

Banks are like bustling bazaars with people seeking advice on where to invest their money and entrepreneurs seeking loans.

Car show rooms are spilling over, with new models and customers vying for the attention of overworked agents.

Much of this visual impression is statistically confirmed. 

Employment generation

India's industrial output growth rate reached 14% per annum by the end of last year - the highest since 1996. 

Given that most of India's boom thus far has been in the area of services, this stirring of the industrial and manufacturing sector is reason for hope. 

Since the country is starting out on a low base in manufacturing, the growth potential is large. And this sector also brings with it the potential for greater employment generation.

Also, India's fiscal situation is better than it has been in decades.

It looks as if for the first time India could get into a sustained annual growth rate of nine to 11%, which would indeed be comparable to China.

It is important at this point to realise that the "economy game" is not like cricket or war. 

Your opponent's loss does not mean your victory.

Typically, when another nation does badly, it is bad news for you too - the global economy is not a zero sum game. 

Hence, India doing well should be good news for China, and vice versa.

Amid the good news I must sound a note of caution. Indian inequality, especially regional inequality, is on the rise. 

There are vast tracts and millions of people who are completely bypassed by the boom. 

It would be foolish of our government to ignore this, since it can destabilise the nation politically and stall the economic resurgence. 

The government needs to be active in redistributing the spoils of high growth to those who are bypassed by the market. 

There is also a huge amount of work to be done in cutting down bureaucratic inefficiency and controlling corruption - India is among the worst in the world in these respects. 

But even with all these caveats, there is no denying that the Budget of 2007-08 is coming at a propitious time, and the Indian economy could well be at the start of the best 20 or 25 years in its history.

Dr. Kaushik Basu, Professor of Economics and Carl Marks Professor of International Studies at Cornell University

This article first appeared on the BBC News Column published in Tuesday, 20 February 2007.