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Inflation headwinds batter rising India

By Harmeet Shah Singh, CNN
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India's 20 years of new prosperity
STORY HIGHLIGHTS
  • After 20 years of reforms, India has become a rising economic titan
  • As the country's fortunes rise, so does inflation and income inequality
  • World Bank: about 410 million of the country's 1.2 billion still live in poverty

New Delhi, India (CNN) -- Rewind to 1991 and you see India buried under an acute debt crisis that forces the nation to mortgage its gold reserves to pay for imports.

Twenty years later, the South Asian nation has risen as an economic powerhouse.

India's turnaround came on the back of reforms it unleashed in 1991 that dismantled a plethora of controls blamed for holding the country back.

"In these past two decades, we have seen an acceleration of India's economic growth. We have seen the unshackling and unleashing of the animal spirits of Indian enterprise," said Prime Minister Manmohan Singh at an award ceremony last month.

"We have seen the emergence of new businesses. We have seen the empowerment of a new middle class in our country," said Singh as he spoke about the 20th anniversary of liberalization that he had authored himself as the nation's finance minister.

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Now Singh -- meeting this week in China with the fellow heads of state of the BRIC emerging economies (Brazil, Russia, India and China) -- must measure the nation's steady progress against poverty with it's struggle with the widening rich-poor divides, as the wealthy grab a larger slice of post-reform opportunities.

According to the World Bank, about 410 million of the country's 1.2 billion people still live in poverty, making India home to one-third of the world's poor people.

India's stubbornly high inflation is compelling some of its poor to compromise on skills that are key to fighting poverty.

Ram Kumari, a migrant woman worker at a construction site in New Delhi, typifies the country's massive impoverished groups crushed by high food prices.

She complains she had to withdraw her children from school because she had no money left for education.

"We had no other choice but to pull children out of class because we couldn't afford up to 90 dollars in school charges. When we don't have money, how can we give it?" said Kumari, who spends most the family income on food.

And experts warn escalating prices could disturb India's growth rhythm.

"Inflation is impacting all sections of society, except the very, very rich, except for the very affluent who boast of a lifestyle, which is comparable to the rich anywhere across the world," said economic analyst Paranjoy Guha Thakurta. "It's certainly pinching the pockets of middle-class householders. But it's really hitting ... it's like two kicks in the bellies of the under-privileged."

India's vast middle-income communities are seen as a major force driving the nation ahead, fueling demands and production with their spending powers. They too feel the heat from price gains.

"Nowadays, everything has become very expensive. So, half of the money (I earn) goes into children's education and household (expenses)," said civil engineer Arvinder Pal Singh, Kumari's employer. "Rather, I should say 60% of the money goes into this children's education, their activities and household grocery, vegetable-buying and all of those things,"

Brazil, India and China are a focus of international attention because of their fast growth despite the global financial crisis. On Monday, the International Monetary Fund (IMF) had a word of caution for emerging economies.

"The challenge for many emerging and some developing economies is to ensure that present boom-like conditions do not develop into overheating over the coming year," the IMF warned in its World Economic Outlook.

"Inflation pressure is likely to build further as growing production comes up against capacity constraints, with large food and energy price increases, which weigh heavily in consumption baskets, motivating demands for higher wages," it said.

On March 25, India's prime minister -- now embroiled in a series of huge corruption scandals rocking his government -- forecast another resurgence.

"Let me assure you that I do have my fingers on the pulse of India today. I sense a mood for renewal, as I did 20 years ago. We did not disappoint India in the summer of 1991. We will grasp the nettle once again," Singh said.