The global financial crisis is challenging accepted wisdom about where the balance of global economic and political power lies. Many Western economies are struggling to shrug off the burden of recession, while the economic powerhouses of the East – China and India – are leading the charge of recovery.

Nowhere is this contrast more stark than the automobile industry, a key barometer of consumer confidence. While the global auto industry survives on 'cash for clunkers' schemes, the Indian automobile market tells a different story.

Passenger sales in India have grown by 19% in the current financial year. The sector is one of the finest examples of India's appetite for domestic consumption. This appetite has nursed Indian corporates back to health and caught the attention of foreign investors looking to be part of the India story.

India's modest stimulus package is already delivering with promising economic growth of 6.5%, while industrial output grew by 9.1% in September.

With an economy based on strong fundamentals and with the re-election of the Manmohan Singh Government earlier this year (which has already pushed for reforms of the Direct Tax Code and the Goods and Service Tax regime), the United Nations Conference on Trade and Development has ranked India as the third most favoured nation in the world for foreign direct investment.

India's resurgence has also been marked on the stock markets. Stocks have continued to out-perform other global indices and are up 62% compared to last year. Recent months have seen a flurry of successful private placements and initial public offerings (IPOs) hitting the market with several more in the offing. The recovery of IPOs will receive a further boost with the Government announcing its intention to divest its holdings in Government-owned undertakings by allowing them to offer shares to the public.

There are also signals that the long-awaited return of M&A activity, both domestic and outbound, is gaining momentum. Indian corporates are once again flexing their corporate muscles in their bid to become true global players. Reliance Industries has made a non-binding $12bn (£7.3bn) cash offer for LyondellBasell Industries. The deal will create one of the largest petrochemical firms in the world if successful. It comes hot on the heels of the proposed $23bn (£13.9bn) merger between Bharti and MTN, which could have established a preeminent player for the emerging markets.

The Indian banking system survived the financial crises relatively unscathed. This domestic liquidity, coupled with recent capital raisings, significant cash reserves and relatively low leverage is encouraging Indian corporates to be on the hunt for acquisition opportunities or to expand into new markets.

Although the Bharti/MTN deal did not happen, having advised the lending syndicate on the transaction, it is clear that investment-grade Indian corporates have no difficulty tapping the international debt and capital markets. Total borrowings by Indian companies in the first nine months of this year grew by nearly 19% in comparison to the corresponding period last year.

This confidence among Indian investors now needs to be matched by the necessary legal, administrative and physical infrastructure that will allow it to compete with China's development. With a savings rate of nearly 40% to gross domestic product, India's challenge is to continue to attract foreign capital while also using its own productively. The lynchpin to sustaining India's growth is for the current Government to deliver on its promise of financial sector reforms, particularly in pensions, insurance and bonds.

Sanjeev Dhuna is a banking partner at Allen & Overy and a member of the firm's India group.