India is in the news for all the right reasons these days. Last week a young Bombay-based novelist won the Man Booker Prize for a novel about a contemporary, jumpy India coming to terms with its new prosperity. On Monday India's space organisation launched an unmanned mission to the Moon. And India's cricket team made short work of Australia in the second Test match.

These recent stories encapsulate an emerging truth about the new India: it is expanding its cultural influence the world over at the same time as it is making a serious attempt to be a military and political power on the world stage.

Indian television serials are the backbone of programming on Afghanistan's fledgeling television stations, and Indian media companies have made serious investments in Hollywood. Senior Indian diplomats confidently argue that India should have a seat on the UN Security Council. And Indian politicians and economists no longer talk about a “Hindu growth rate” of 2 to 3 per cent; instead, Manmohan Singh, the Prime Minister, recently apologised that the economy might see growth of “only” 8 per cent in the coming year. India's military has begun to expand abroad in unprecedented ways: the air force opened a base in Tajikistan in 2006, and the navy now patrols international waters from the Malacca Strait to the Gulf of Aden.

Could it be that India's moment has finally arrived? Or is this another mirage, like the promised booms of the 1980s and 1990s, with their promises that India would become the next “Asian tiger”?

The truth is that alongside the shiny new shopping malls, cheap cars and high-tech business parks is a set of complex challenges that could threaten India's “economic miracle”.

Despite the evident prosperity of India's middle and upper classes, poverty remains a real issue in India: the World Bank estimates that more than 450 million Indians live below the poverty line. Its politicians and bureaucrats have long been proud of the consensual basis of economic development in India; they contrast India's slow but socially inclusive expansion with the disruptive, rapid growth forced through in China from above. But there are signs that this social compact is breaking down.

The Hindu right-wing BJP lost the 2004 elections partially because of a backlash by rural farmers, whose experience of increasing poverty belied the party's “India shining” campaign theme, which focused on the rising prosperity of cities. Recent protests by farmers in West Bengal over land appropriations by the state government for factory building suggest that further economic progress may be bought only at the cost of serious unrest. A series of murder cases in middle-class neighbourhoods in which family servants were wrongly suspected by the police and media points to a darker truth: not even the wealthy can continue to believe that money will protect them from the resentment of those left out of India's new wealth.

India's population also presents a serious challenge to her ambitions. India is projected to be the world's most populous nation by 2050 at around 1.6 billion, which will strain the country's already stretched water resources and food security. Equally worrying is the sex-ratio of India's population: female infanticide has created a “deficit” of about a million “missing girls” per year. Young men in some regions of India already struggle to find brides, and families in prosperous states have begun to import brides from poorer regions. Over the next 20 years India will have to contend with an increasing number of young men unable to marry, or will be able to do so only at the cost of serious unrest in bride-exporting regions.

More worrying is India's dire water situation. When I lived in Delhi nearly a decade ago, we rose at 4am to fill buckets during the hour or so that we could get water; now Delhiites are rapidly exhausting the city's groundwater with private wells and paying private tankers to deliver daily supplies. And it's not just in India's overcrowded cities: so are all of India's major agricultural areas. India's breadbasket state of Punjab shares its river-water with Pakistan. But its rivers are drying up, and increasing amounts are being lost to seepage and evaporation along the state's century-old canal system. Some even fear that disputes with Pakistan over water may become a cause for South Asia's next big war.

Perhaps the most serious of India's challenges is its increasingly dangerous neighbourhood. Pakistan is teetering on the brink of bankruptcy, while terrorism and instability in Afghanistan threaten its very ability to function as a nation state. Trouble there could spill over the border.

Equally serious is the long-term situation in Bangladesh, which looks likely to become one of the countries most seriously affected by climate change. Between 10 and 30 million Bangladeshis may become refugees because of rising sea levels; many of them would seek to cross the border to India. India's newest initiative to control illegal migration from Bangladesh, a 12ft wire fence along the border, will be useless in the face of a large-scale refugee crisis.

Political science tells us that a country's prosperity greatly depends to a great degree on the quality of its neighbourhood; if India's falls apart, it will prove difficult - if not impossible - to sustain economic growth.

Any of these factors taken alone would test even the most prosperous of nations; taken together, they constitute a serious threat to a rising economic and political power. India's moment may well be here: the challenge will be to make it last.

Jeevan Deol is lecturer in South Asian History at Oxford University

Times Recommends

• In the real world, the public sector must pay
• Playing politics in a land of double Dutch
• Be like the plinth people: not set in stone