NEW DELHI -(Dow Jones)- U.S. Treasury Secretary John Snow on Thursday said India could become one of the most important economies in the world, but only if it moves forward with economic reforms.

"India's natural advantages make it poised to take a leading role in the global economy," Snow said in prepared remarks to be delivered to business leaders on the last day of his India visit this week. "In fact, India has the potential to be an economic powerhouse."

India's young and growing population gives it a source of labor that is a competitive edge over the U.S., Europe, Japan and China whose populations are aging rapidly. Further, India's widespread use of the English language increases the value of its skills in a globalized economy, Snow said.

Snow noted that India has achieved a stable economic environment of low inflation and strong foreign exchange reserves, while pursuing an "enlightened" policy of allowing a flexible exchange rate.

The central bank has imposed good supervisory policies so that Indian banks don't face the financial system risks experienced in other developing economies, he said.

Nonetheless, India must create jobs for this expanding pool of labor and rapid economic growth rates are necessary for that, Snow said.

"The achievements in India are significant, but there is so much more to accomplish," Snow said. "The pace of reforms will be decided by India's economic leaders and the demands of the global economy, but I think it's important to recognize that there are costs to going too slow."

Opening the banking and retail systems to greater competition would bring needed capital, broaden access to credit, and upgrade management skills and technology, Snow said, adding that more capital would be channeled into productive investments.

"A stronger financial sector, combined with steps like the liberalization of the retail sector and more effective use of technology in the agricultural sector, would jump-start a surge in investments in India throughout the agriculture and food processing sectors that would add jobs and increase productivity," Snow said.

Though India has high private savings rates, those savings aren't channeled efficiently into productive uses, Snow said.

Deposits in the banking system are much lower as a share of the economy than in either China or Japan, he said. Banks put over 40% of assets into government bonds, he noted.

"Government borrowing is having the effect of crowding out lending that could be made to the private sector," Snow said.

India's public budget deficit is running above 9% of gross domestic product. Domestic bondholders hold most of India's sovereign debt, limiting the risk of financial crisis, but the rising tab of national debt is driving up interest spending.

Reform and opening the Indian economy to foreign investment would expand the country's ties with the U.S., Snow said. The U.S. is now India's largest trading partner and the largest source of private equity capital in India . The two countries are both democracies, reflecting shared political values, he said.

"It's important to recognize that the potential here has only been glimpsed," Snow said. "Looking ahead 15 to 20 years, the U.S.-Indian economic relationship should become a key pillar of strength for both our countries and for the global economy."

-By Elizabeth Price, Dow Jones Newswires; 202-862-9295; Elizabeth.Price@ dowjones.com

-Edited by Genevieve Soledad

(END) Dow Jones Newswires

11-10-05 0216ET Copyright (c) 2005 Dow Jones & Company, Inc. Copyright (C) 2005 Dow Jones & Company, Inc. All Rights Reserved.