HAVING THE luxury of being courted from all sides as the next big thing, the Indian government is emphatically playing all the angles. India is indeed coming into its own-as demonstrated by American, Russian and Chinese courtship-but it faces a host of acute challenges on the road to great-power status. Most of these challenges arise from domestic economic disparities. Ultimately, India's success in foreign policy will depend upon its ability to reconcile uneven economic development with the practical reality of democratic politics.

India's increase in economic might underlies its hedging strategy in foreign policy. The country seeks amiable relations with all regional powers, both strengthening its ties with the United States and China, and maintaining long-standing friendly relations with Russia.

The U.S.-India Nuclear Agreement marks a new trajectory in bilateral relations, following decades of Soviet and then Russian preference. Indian popular sentiment toward the United States has been improving, although the Russians still win out handily in comparison. While the United States is, and for years has been, India's largest trading partner, a deeper political relationship awaited the controversial nuclear agreement. That agreement is evidence of a new U.S. commitment to the relationship, mostly to counter-balance the rise of China. The Indian government seems to be taking the whole affair in stride, relishing U.S. attention but unwilling and unable domestically to trumpet it-despite "pulling out the stops" when George W. Bush visited last year.

Nevertheless, post-Soviet Russia remains a reliable source of military hardware, nuclear technology, and oil and gas. The January 2007 visit of President Vladimir Putin only served to underline the importance of this economic relationship. The trade flows mostly one way, but the Indians are comfortable in the relationship and with Russia's oft-stated support for non-interference in the domestic affairs of others. For its part, Russia sees its relationship with India as a counterweight to both the United States and China in the region.

And despite lingering mistrust over border and military issues, India is also bolstering its ties with China-as reflected by the November 2006 visit of President Hu Jintao to New Delhi. Trade between the two nations has been growing rapidly, and many predict that China will supplant the United States as India's largest trade partner in the near future. That said, certain "strategic" sectors of the economy remain off limits to China, reflecting both past animosities and objections to China's continued close relationship with Pakistan. Nonetheless, the prospect of China and India growing rich together seems to appeal to politicians in both countries, and the liberalizing secret of China's liberal-economic outlook has not been lost on the Indian government. In fact, Indian economists will admit that China's unalloyed demand for resources to fuel its growth has buoyed India as well.

As long as India is not forced by circumstance to choose among the great powers, it will not. The government is enjoying its newly interested distant and not-so-distant neighbors' attention and, by appearances, is enjoying the opportunity to play them off each other every now and then. For the time being, India will gladly accept the best that Washington, Moscow and Beijing have to offer.

Aside from strategic motivations, the Indian government has other good reasons for not getting too involved in great-power politics. After all, it faces many complex challenges much closer to home, regardless of its growing regional and global role.

India may see its future among the great powers, but right now, relations with Pakistan continue to dominate the foreign policy agenda. Kashmir-at the heart of the ongoing dispute-remains seemingly intractable. Sporadic, deadly attacks, such as that in February on the Delhi-Lahore train, serve as bloody reminders. Nevertheless, economic links between the two nations continue to grow, fed by cultural empathy and geographic necessity. Due to considerable political barriers, much of the economic relationship is conducted semi-covertly via the regional financial center of Dubai, according to Indian bankers familiar with the process.

Related to the conundrum of relations with Pakistan, yet distinct in its own right, is India's challenge to incorporate its sizeable Muslim minority of around 140 million into a total population of 1.1 billion. Intermittent Hindu-Muslim violence is largely reflective of local political maneuvering but also betrays significant economic disparities in a country wracked by poverty. The worldwide growth of radical Muslim factions, attributable to a variety of causes and by no means unknown in India, provides an additional impetus to address the inequality India's Muslims suffer. The progress that India makes on this issue can serve elsewhere as a model for integrating disaffected minorities with tight links to neighboring nations into society.

Above and beyond the admittedly key question of minority politics is majority politics; in other words, dealing with the over 60 percent of the population that lives in rural areas and is disproportionately poor and uneducated. India's politicians frequently boast of the demographic bonus of a young and growing population. But unless the state finds a way to provide basic skills universally, India's nascent industries will be starved of labor just when they need it to compete in an increasingly open global economy. Further hindering rural development is a drastically underdeveloped transportation and power infrastructure, which is unlikely to progress without significant foreign investment. Overall, slightly more than half of the population has access to a power grid, but the percentage is even lower for rural residents. Moreover, not only is north-south and east-west travel in the country extremely laborious, but many rural villages do not even have good roads connecting them to provincial capitals.

Delhi itself is not much different from other developing-nation capitals, except that there are people everywhere. India's capital city has nicer residential areas curtained off with wrought-iron fencing and forbidding-looking armed guards. It has industrial areas populated by boxy buildings teeming with activity. And it has crowded warrens of apartment buildings down twisted, narrow alleyways. Aside from the sheer numbers of people, the juxtaposition of immense wealth and abysmal poverty is overwhelming. One of many such examples comes to mind: a shiny white billboard advertising the best in satellite TV services astride a grimy, mini-slum city of torn tent rags flapping slightly in the breeze.

The pollution that the advancing economy has created in India's bustling capital also cannot be ignored. Garbage strewn in the streets, acrid smoke in the air and putrid river water coursing through the city tell the well-known story of activity outpacing infrastructure capacity and of the hunger pushing a poor nation toward material success. Due to a lack of funding, corruption and poor planning, utility services are distributed very unevenly, leaving the option of illegal dumping. The busily belching factories, the exploding ownership of cars and the irresistible attraction of potential jobs bringing squatters and their unending wood fires ensure a haze only a downpour relieves.

Most analysts of Indian affairs are reluctant to speak of the country as a unit, given its incredible cultural, economic and political diversity. Nonetheless, certain generalizations can be made. While a reluctant leader of the Non-Aligned Movement, India is only now beginning to have real influence globally. Its rapid economic growth has brought many out of poverty, but it remains a poor country beset by significant problems, including a very unequal distribution of wealth.

The challenge of the current government is to make the case to its people that economic liberalization, while painful, is the best way to bring greater prosperity to the nation as a whole. After all, the previous flirtation with socialism unequivocally failed to address the plight of the majority of Indians. In spite of its Communist partners, the Congress Party, led by a leftist coalition sparked by Prime Minister Manmohan Singh-who as finance minister in the 1990s started India on its liberalizing path-has made some headway on reform. But the scale of the problem demands more effort in this regard.

To note the more obvious obstacles on India's path to development is not to belittle the advances achieved so far. After decades of failed insular economic policies, the government has finally seen the advantages of opening its markets. One hopes that this lesson will not be lost amid delight at 9 percent annual economic growth. Now is precisely the time to make some painful political choices that will ultimately make the people of India better off. These include opening the manufacturing and financial services sectors to investors, including foreigners, and liberalizing the labor market so that expanding companies are not afraid to increase hiring for fear of being unable to decrease employment in a downturn. The government is showing its wisdom in a multi-pronged approach to international relations; the importance of this strategy in the economic sphere should not be dismissed.

Leah Fenwick is a former Foreign Service officer and now a senior program officer at Financial Services Volunteer Corps. FSVC hosted its annual gathering of financial, energy and security experts from the United States, Russia and China in Delhi this past January. This article was written with financial support from the Carnegie Corporation of New York and reflects the views of the author alone.

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