India and China will drive global growth: FM
"Going forward, China and India will continue to be drivers of world growth, with China growing at 8-8.5 per cent and India at 6.1-6.7 per cent between 2013 and 2014," he said, while addressing students and faculty of Harvard University on 'The Rise of the East Implications for the Global Economy'.
Chidambaram, who is in the US to meet investors and sell India's growth story, acknowledged that there is "potential for tension" within the countries of the East as they compete for resources and markets.
"In recent months we have seen talk of conflict over islands, underwater resources, or even water itself. We need to work collectively to reduce these tensions and to ensure that trade, investment, and mutual gain trumps narrow self interest," Chidambaram said in his address on Tuesday.
The economic slowdown in recent years has forced the world to adjust and industrial countries would now have to save more while emerging markets need to spend more, he said.
"Such an adjustment will help industrial countries pay down heavy debt loads, even while leaving global demand to be supported by the emerging markets. Of course, the nature of spending will vary across emerging markets. China probably has to consume more, while India has to invest more," he noted.
While China's investment story has been much commented upon, "India's is just starting out," he said.
Chidambaram noted that while India saves a lot, its savings fall short of its investment needs.
India's savings rate at its lowest in recent years was about 30 per cent of GDP.
"India needs intelligent risk capital that will ensure that investments are monitored and brought to fruition. And India needs long term patient capital that is willing to collect a return over many years," he said.
Chidambaram noted that rise of the East may also be contributing to social tensions.
He said that while advanced industrial economies have adapted by creating new jobs and endowing their workers with the skills to do those jobs, the pace with which the East has grown has reduced the time companies and workers in industrial countries have had to adapt.
The high levels of persistent unemployment in industrial countries may partly reflect the lack of such adaptation, he said.
"This is creating new problems….How will advanced industrial countries find people for the jobs that are vacated by retiring workers if their fertility rates fall below the replacement rate? The answers will determine the character of such societies in the years to come," the Finance Minister said.
"The wrong answer is to blame immigration, trade or technological progress. The right answer will be to harness these forces to provide the remedies," he added.
Alluding to the recent financial crisis, Chidambaram said it could be seen as evidence that the imbalances that were building up were unsustainable.
Noting that emerging markets have not been immune to the economic slowdown, he said slowdown in industrial countries has affected India, especially its exports.
Unlike other emerging markets, India has been a net importer of goods and capital and it too has become more open over this period the sum of Indian goods and services traded exceeded 55 per cent of GDP in 2011-12.
Chidambaram further said that India stands to gain from its huge demographic dividend.
As India's share of the working age population continues to rise, nearly one-half the additions to the Indian labour force over the period 2011-30 will be in the age group 30-49.
The share of this age group is slated to decline in advanced countries and this would result in greater production, savings and investment in India as the country reaps its demographic dividend, he said.