Chidambaram Says India, China to Drive Global Growth

Dec. 2 (Bloomberg) -- India and China will continue to drive global expansion as they are more ``nimble'' and can produce at lower cost, Indian Finance Minister Palaniappan Chidambaram said.

``China and India have much to look forward to,'' Chidambaram told the India Economic Summit organized by the World Economic Forum in New Delhi today. ``Developing countries have acquired greater capacity to compete with developed countries.''

The two Asian economies, the world's fastest growing, adapt better to changes in global market conditions as they have cheap labor and can more quickly seize opportunities, Chidambaram said. That doesn't mean economic power has moved to China and India, the Harvard-trained minister said.

``As long as advanced countries have the edge in knowledge, financial and material resources, I don't think power has shifted to developing countries,'' Chidambaram said. ``What has changed is that developing countries have acquired greater capacity to compete with developed countries.''

India's $906 billion economy grew 8.9 percent last quarter from a year earlier, while China's $2.6 trillion economy expanded 11.5 percent. That kind of pace is more than three times the rate of growth in the U.S. and countries sharing the euro. Still, the World Bank estimates more than half India's 1.1 billion people live on less than $2 a day.

Reducing Poverty

``Only by solving poverty can India be accepted as a true power in the world,'' said Anand Mahindra, managing director of Mahindra & Mahindra Ltd., India's biggest maker of sport-utility vehicles.

Advanced countries hold ``pride of place'' in building knowledge societies as they have the best universities and laboratories and attract the brightest minds, Chidambaram said. Similarly, the world's most ``influential financial centers'' are cities in the U.S., U.K. and other developed nations, which also have substantial control over the world's gas, oil and other material resources.

Chidambaram said sooner or later, India and China will secure material resources, ``but in the next 10 to 20 years our strength will come from our ability to produce goods and services at lower costs, from nimbleness to adjust to change and from a demographic dividend.''

He said India, where more than half the population is younger than 25, can benefit from its so-called demographic dividend if the government ensures every child goes to school and imparts skills to them when they finish their studies.

`Rigid Bureaucracies'

Among his regrets after more than three years in office is the government's failure to deliver results in education, health and irrigation even after more than doubling spending in these areas in the past four years, the minister said.

``While we have expanded outlays in irrigation, education and health, we are still totally dependent on tried-and-failed systems to deliver results,'' he said. ``We haven't looked at an alternative solution to the rigid bureaucracies we have.''

Chidambaram said investment was the key to sustain economic growth in the South Asian nation.

``An increase in investment means more jobs, which means more incomes and savings, which in turn means more investment,'' he said.

India's ratio of investment to gross domestic product touched a record 35.1 percent in the year ended March 31, and Chidambaram expects it to be ``slightly more'' this year.