Rising economic powerhouse

India, China and other emerging markets will reap the rewards of a historic shift in global economic power if they “do everything right,” said Nouriel Roubini, the New York University economist who predicted the financial crisis.

While the economies of India and China are still not large enough to lead global growth, they and other emerging markets remain “bright spots” compared with the U.S., Europe and Japan, which all face deflationary pressures, Roubini said at a conference organized by Edelweiss Capital Ltd. in Mumbai today.

“The size of the emerging markets is going to become larger and larger, and it’s going to become greater than the GDP of the United States,” Roubini said. “It may take 20 to 30 years, depending on relative economic growth, but the process will occur” and “we should get used to it.”

As the U.S., Europe and Japan struggle to recover from the worst recession since World War II, India’s main stock-market index has soared over the last 12 months and its economy may grow 8.2 percent in the year starting April 1, the fastest in two years, the Finance Ministry said in February. Chinese gross domestic product grew 10.7 percent in the three months through December, the quickest pace since the fourth quarter of 2007.

“China has been a hare and India a tortoise but growth is accelerating in India,” Roubini said. Emerging markets are set for a V-shaped recovery, even as India still has a “massive” need for human and financial capital as well as economic-policy changes to achieve double-digit growth like China, he said.

‘Still Damaged’

Financial markets in the U.S. and Europe, meanwhile, are “still damaged” from the crisis and U.S. economic growth may slow in the second half as stimulus measures are phased out and the job market remains “weak,” Roubini said. The U.S. recovery may be U-shaped, he said.

Asian nations from China to India have begun withdrawing monetary stimulus to avert asset bubbles and curb inflation as their economies rebound. Any declines in Indian stocks are an opportunity to add to holdings, Zurich-based Bank Julius Baer & Co. said this week. Investor Mark Mobius this month predicted the nation’s stocks will outperform other emerging markets.

India’s Sensex index has surged 84 percent in the past year. On March 19, the central bank raised the benchmark reverse repurchase rate by a quarter of a percentage point to 3.5 percent and the repurchase rate by the same amount to 5 percent.

India’s stocks will withstand the stimulus withdrawal and extend last year’s rally, the biggest in 18 years, as domestic spending strengthens, John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International, a unit of Prudential Financial, which oversees $667 billion, said in a March 26 interview.
Ahead of Indo-US Strategic Dialogue, an Obama Administration official termed India as a "great and emerging global power" and said the talks, next week, will take the relationship between the two nations to a new level.
"I think the strategic dialogue speaks for itself. India is a great and emerging global power. Our range of interests are significant in terms of the environment, in terms of regional security, in terms of counterterrorism, economic issues," State Department spokesman P J Crowley told reporters here.

Leading a high-power delegation of several Cabinet Ministers, External Affairs Minister S M Krishna is scheduled to arrive in Washington in the next couple of days for the first Indo-US Strategic Dialogue from June 1 to June 4.

While the names of the Indian delegation has not been announced yet, it is expected that it would include Human Resources Development Minister Kapil Sibal; Deputy Chairman of Planning Commission Montek Singh Ahluwalia; Minister for Science and Technology Prithvitaj Chauhan; and Foreign Secretary, Nirupama Rao.

Secretary of State Hillary Clinton - who returned from her week-long three-nation Asia trip from Japan, China and Seoul -- would lead the American delegation.

During Clinton's visit to India, last year, it was decided that the strategic dialogue should be launched between the two countries.

"We have very strong cultural ties to India, so we look forward to the strategic dialogue. It's something that the Secretary and the President (of the US) felt important to elevate the level of our coordination and cooperation. So we look forward to the dialogue," Crowley said in response to a question.

"I think our relations with India have never been stronger. We are talking about the relations between the largest and oldest democracies in the world. We have a great deal in common and we look forward to the meetings next week," Crowley said.