The world may fret over a possible US recession but the strong economies of India and China can act as "two engines of growth" to counter its global effects, India's Commerce Minister Kamal Nath said in Davos on Wednesday.
Nath, who is in a power-packed Indian delegation of 80 at the annual meeting of the World Economic Forum (WEF) in this snow-clad Swiss mountain resort, also coupled his comments with guarded optimism over the stalled Doha Round of trade talks.
"I am optimistic this Davos will create a greater momentum towards conclusion," Nath said, referring to process to restart talks at the World Trade Organisation (WTO) that have made little headway due to charges of protectionism by rich and developing nations.
"I am also realistic that there is an election in the US. I am realistic that Europe is in a new phase of protectionism," he said, even as he sought to spell out the importance of India and China to the world economy today.
"This is the first time the world is looking at a possible recession with two engines of growth - India and China," he said, in the first significant comment by a political leader to the 2,500 delegates gathered here.
"No economy can totally decouple itself from the US."
Although the US economy consumed goods and services worth $9.5 trillion last year, Nath said it would be important to see how much of that was wiped out by the "current crisis".
But with greater South-South trade between developing countries, particularly India and China, he said "the magnitude of the trade can't be the same as in the past."
The minister's comments came as the role of India and China became a hot topic of discussion among the participants from 88 countries gathered in Davos. Among them are over 1,300 business leaders representing the top 1,000 companies of the world, 27 heads of state or government and 113 cabinet ministers.
Many are also looking at Indian delegation leader and Finance Minister P Chidambaram, who arrives later on Wednesday, for clues about possible Indian strategies to help tide over the worst of the financial crisis.
Chidambaram said before arriving in Davis that the "fundamentals" of the Indian economy are strong, a statement that helped calm market sentiments after two days of stock market volatility Monday and Tuesday.
The Indian delegation also includes Aviation Minister Praful Patel, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Maharashtra Chief Minister Vilasrao Deshmukh.
Indian business leaders making their way to Davos include Anil Dhirubhai Ambani, Rahul Bajaj, ITC's Yogesh Deveshwar, Adi Godrej, Jet Airways chief Naresh Goyal, Vijay Mallya, Sunil Bharti Mittal, Azim Premji, DLF's Kushal Singh, Kiran Shaw-Mazumder, Lakshmi Mittal and ICICI's K.V. Kamath, who is co-chair of meeting.
Nath refused to be bogged down by talk of a global recession following the US economic crisis, saying: "The reason I'm not pessimistic is that the momentum of growth is growing year by year.
"The US was India's biggest trading partner. As of this morning, China is India's biggest trading partner," he said, stressing the role of increased South-South trade in cushioning the worst effects of a global economic downturn.
But Stephen Roach, Chairman, Asia, Morgan Stanley, said US consumers are six times the size of India and China combined, which meant that any downturn in the US would have "great consequences".
Decoupling the US economy from the world was a "fantasy", he said.
Nath, as well economists at the WEF, said India was in a better position than China to cope with a downturn.
"Unlike China, India's growth story is a domestic market driven growth," Nath told a panel.
"There is an expectation that the high growth market of India will help the world weather the storm," said Lee Howell, Head of Asia and Global Agenda at the WEF.
Howell said that China, unlike India, was more susceptible to the US financial crisis because it followed the East Asian export-led model of economic growth.
Decoupling, in simple terms, is a debate over how interlinked the global market really is and whether it is possible to draw a line between the US and other economies in a globalised world as a strategy to cushion the world against any crisis in the US.
There is a difference of views among economists about the state of the US crisis.
Many economists feel the US sub-prime loan crisis, where banks lent huge sums in mortgages to less-than-reliable borrowers, followed by a reduction in the availability of credit are combining to spin the US economy into a period of temporary downturn.
Others feel the country is heading toward a period of recession.