India on Saturday said it would open up its financial sector further, but this would happen gradually after putting in place appropriate laws and appointing regulators.
"It is our intention to move forward, but at every step the watchword will be caution and placing suitable instruments to prevent financial shocks," Finance Minister P Chidambaram said in his lecture at Yale University.
"We have taken measured steps in banking, insurance, capital markets, securities markets and the debt markets," he said, adding that American banks, insurance companies and other financial intermediaries seem to have realised the opportunities that lie ahead and accepted the wisdom of India's policy to 'hasten slowly.'
There has been considerable interest on the part of American corporations in the Indian financial sector, as this is the sector where Washington's comparative advantage seemed to lie in the present day, Chidambaram said in his lecture to the Yale University.
Turning to the Indian economy, Chidambaram said India was now coming to a point where its contribution to world economic growth would be significant with a GDP of nearly $800 billion and each 10 per cent rise in India's GDP would contribute $80 billion to world output.
Chidambaram said India's greatest achievement lies in the political arena. "Every tenet of political science argues that poor countries succumb to violence, fanaticism, civil wars and dictatorship. India is the exception."
India is the best functioning multi-cultural, multi-ethnic, multi-religious country in the world, he said, adding that "looking forward, individuals and firms, both domestic and foreign, can feel confident about India, including its political and social stability over the next 50 years."
Showcasing India as major foreign investment destination, particularly in infrastructure, Chidambaram said there was an 'obvious fit' between India's values and those of the mature industrial economies.
Observing that economic interdependence between India and the United States was growing at an astonishing rate, he said there had been a heightened interest in portfolio investment in Indian equities from US institutional investors.
He regretted that outsourcing had been wrongly interpreted as 'exporting of jobs' and making it controversial, which is unfortunate for all sides.
"Producing goods and services in India makes goods and services cheaper in the US," he said, adding that in a highly competitive world, with intense competition among companies to cut costs, any hesitation to outsource spares, intermediate inputs and some processing requirements or services from the most cost competitive corners of the world may result in a total loss of business for the company and an even greater loss of jobs.
Furthermore, Chidambaram said that if one looked ahead in time, the ageing profile of many developed economies meant they would have the choice of either importing people or outsourcing work.
Though little noticed, the finance minister said there was growing inter-dependence between India and the US based on financial markets. Net capital flows into India have been at a level of $12 billion in each of the last two quarters.
US institutional investors were increasingly investing in India and all kinds of investors were participating in this, ranging from pension funds to university endowment funds to mutual funds to insurance companies, he said.
"They are entering into every aspect of India's economy, through venture capital, listed equity, corporate bonds and government bonds, he said, adding that foreign investors are trading on India-related instruments, both spot and derivatives in India and on offshore markets.
"Conversely, Indian multinational corporations are increasingly buying companies in the US and setting up operations in the US," Chidambaram said, adding that "two-way financial flows is thus an important aspect of our interdependence."
Referring to the problems faced by the global community, the minister said there were four major issues -- delays in completing the Doha round, terrorism, international financial architecture and global warming.
"In my view, the three large countries -- the US, China and India -- would do well to collaborate in solving these problems," he said, adding that persistence of these problems point to failure of global public goods and to the deficiencies of multilateral institutions.
The World has changed enormously since 1945 when United Nations, World Bank and IMF were set up, Chidambaram said, emphasising that there was need for a far-reaching examination of the mandate, governance, management and behaviour of these organisations to make them relevant in 2005.
The mandate of these organisations were outdated in the context of the present problems, he said citing the example of the United Nations, which was "conceived at a time when no state actively pursued a policy of support to cross-border terrorism."
"The governance of these organisation is not aligned with present realities," he said, adding that the UN, World Bank and IMF disempowers four of the five biggest economies, China, Japan, India and Germany in various ways.
The management of these organisations was dominated by the US and to a lesser extent by Europe. "This contaminates the behaviour of the organisations, and the extent to which other countries see the UN, the International Monetary Fund and the World Bank as neutral bodies."
In a TV interview on the Charlie Rose show, he said: "The emergence of India and China along with Brazil and South Africa, on the path of reform, progress and prosperity is good for the world."
However, both India and China would not rise to the level of the US in per-capita income even if the size of their economies rise because of the large population, he said.