Jack Dzierwa, global strategist for U.S. Global Investors, recently visited the Indian cities of Delhi and Mumbai for the four-day Citi India Conference 2008. Here are some of his observations:

India has tremendous promise, but it must rise above many challenges to reach its potential.

The numbers tell the story: India’s middle and upper classes comprise an estimated 350 million people – a number that already exceeds the entire U.S. population and continues to grow. That’s the good news. The bad news is that there are more than 400 million Indians who can’t read or write.

That dichotomy is apparent everywhere you look. The conference hotel in Mumbai was the equal of any on Park Avenue in Manhattan. But immediately outside its doors were scenes of unimaginable poverty.

When I went to Agra to visit the Taj Mahal, the roads were in poor condition and traffic was gridlocked. However, cattle maneuvered easily between cars. This illustrates the challenges facing what I believe is one of India’s most promising sectors: the automobile industry. At the conference, I attended several presentations given by automakers.

Last year, PricewaterhouseCoopers identified India as the fastest-growing auto manufacturer among the world’s top 20 car-making countries from 2006 through 2011. Global players like General Motors and Honda are represented there. Other foreign automakers have entered into joint ventures with homegrown companies, creating Mahindra Renault and Maruti Suzuki. And, of course, there is India’s Tata Motors, known for its plans to market the $2,500 Nano, sometimes called the “People’s Car.”

Automakers in India are increasing capacity, and with good reason: About eight out of every 1,000 people in India own cars, meaning there is huge potential to increase sales. At the same time, Indian automakers are finding markets for their small cars in South America, Africa and elsewhere in Asia.

Rising car ownership in India will add pressure to already overburdened and undermaintained roadways. Automakers say people who can afford cars sometimes will not buy them because of the poor roads. Companies looking to export cars made in India find it difficult to get them to seaports, and the ports often do not have the ships and facilities to transport these cars around the world.

Under its 11th Plan, which runs from 2007 to 2012, India has allocated $492 billion to infrastructure. I am optimistic that India will be able to bring its roads and ports up to par.

Another sector in India that has great possibilities is mobile telecommunications. Current mobile penetration in India is about 22 percent, compared with 38 percent in neighboring Pakistan and 115 percent in Russia. Mobile phone service in India is among the most affordable in the world, so when you walk through the streets, it’s not unusual to see people living in deep poverty chatting on cell phones. Some of the larger telecom companies are sharing towers to keep costs under control. There is tremendous upside.

An advantage that India will have going forward is its entrepreneurial spirit. India’s people and companies are well-represented among the titans of the business world. Lakshmi Mittal heads up ArcelorMittal, the world’s largest steel company, while Mumbai-area native Vikram Pandit was recently named CEO of Citigroup. Tata, Infosys Technologies and Reliance Industries are among the ranks of multinational companies based in India.

The day before I left for India, I attended a speech in San Antonio by former British Prime Minister Tony Blair. During that speech, Mr. Blair said global power is shifting away from Western nations toward those in the East, largely due to the combination of large populations and rapid economic growth. If India builds up infrastructure and finds an effective process for alleviating poverty, I believe it will present vast opportunities for investment.