Can Bombay sustain boomtime?

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India may well be the second-fastest growing economy in the world this year, after China. Government, independent think-tanks and investment banks agree that GDP will grow by close to 7% this year. Moody's put India's foreign currency sovereign rating on review for a possible upgrade from sub-investment status in early October, citing its foreign exchange reserves of over $90 billion.

Foreign investors have put over $5 billion into India this year, 80% of which is in Indian stocks, pushing the Bombay Stock Exchange Sensex up 56% since April. Only $740 million came from foreign investors in 2002. The rush into India began in May and portfolio investment peaked in mid-October, before correcting sharply on October 23.

Indian companies have restructured and domestic consumption is expected to grow from $250 billion to $510 billion in the next five years. New sectors have appeared. Insurance is open to foreigners and outsourcing has grown. There are more young people earning more than ever and ready to spend. "When foreign investors look at emerging markets India stands out for all these reasons," says Andrew Holland, executive vice-president of research at DSP Merrill Lynch.