India, China will rule the world: US expert

Press Trust of India
Updated: Saturday, July 30, 2005 at 1352 hours IST

Washington, July 30: The economies of India and China will grow and with the size of their population, will become larger than the US in absolute terms, an American analyst has said.

"It is true that both China and India face daunting challenges and much could go wrong. I have been impressed, however, by the extent to which they have identified their challenges and put in place mechanisms to deal with them," founder of the Economic Strategy Institute and Counsellor to the Secretary of Commerce in the Reagan Administration Clyde Prestowitz told The Washington Post.

"These economies will grow, and by dint of the size of their population, will become larger in absolute size than the US economy. Thus the weight of influence in the world will inevitably change in their favour," he said in an on-line chat, "The US is moving towards a service economy and away from manufacturing, leaving the country in a situation where it won't be able to produce its way out of debt," he said.

Asian economies which invest part of their foreign exchange reserves in the US may keep buying US debt but this debt has to be financed.

"We have to pay interest or dividends or in some way ultimately give them a return on the assets they have bought. That means a claim on future American income and thus lower standards of living for our grandchildren. Second problem is that our financing requirements now soak up about 80 per cent of available world savings. Once we hit 100 per cent, there is no place to go," Prestowitz said.