India will catch up with China by the year 2020 in terms of economic growth on the strength of its better efficiency of investments, an Asian Development Bank economist has said.

India also has an edge over China in service sector, ADB Chief Economist Ifzal Ali, who has taught at Indian Institute of Management-Ahmedabad and at Delhi School of Economics, told a press briefing in Washington on Monday.

Asked whether India would ever catch up with China, Ali replied, "Eventually yes."

He said the current volume of investment in India could not be compared with that in China -- in China it was 40 per cent of the GDP, in India 22 per cent.

"However, the efficiency with which investment is used is higher in India than in China," he said. The implication is that India is less resource-intensive than China.

Ali did not foresee India becoming the manufacturing platform for the world like China, but India has a comparative advantage over China  in the service sector, which is already 50 per cent of the GDP in India against 22 per cent of the GDP in China.

India's GDP today is half that of China and this will continue for the next 5-10 years. But China's growth rate will start to go down, while India's will go up; so "if you are going as far as 2020, yes (India will catch up)," he said.

Ali also said with $1,200 billion in reserves, the present time was the best time for Asia to bring down its fiscal deficits and liberalise further.

Asked whether part of these reserves serve to cover the huge American fiscal deficit, Ali said: "Well, countries like Japan, (South) Korea, China and India are buying US Treasury bonds. What they are doing is they are preventing the dollar from depreciating. They don't want the dollar to depreciate."

An ADB press release said that developing economies in Asia must create commercially profitable and politically stable environments if they hope to capture a greater share of the billions of dollars in foreign direct investment flowing into the region.

The stakes are high for economies in the region, it notes. Foreign direct investment in developing Asia grew from $694 million in 1970 to $138.6 billion in 2000, before declining to $90.1 billion in 2002.

In order to attract the huge amount of FDI pouring into the region, ADB says, economies should move away from restrictive investment regimes such as joint venture and domestic content requirements. The best policy is to allow wholly owned subsidiaries to operate without local content mandates, it says.

The Indian economy's growth rate, it notes was 7.3 per cent in 2003 and is expected to be 7.4 in 2004 and 7.6 in 2005. India's growth rate of 7.3 per cent in 2003, said Ali: "Came as a surprise not only to everybody else but very much to us (ADB). We had forecast a much lower growth."