New Delhi: Nobel Prize-winning economist Paul Krugman said the government should not have a “heavy hand” on economy, pointing towards non-protectionist measures and fostering private participation.
“India was famous for License Raj, where bureaucratic obstacles were immense. I’m on the centre-left, but I don’t think the government should have a heavy hand on economy. India has become a much easier place to do business. The Prime Minister said India moved from 148 to 100 in the rankings. That’s not a badge of distinction, but its better,” said Krugman at News18 Rising India Summit.
The economist further said that when people talk about South Asia, they refer to China but India is part of this story as well. “India is still poor, but not where it was earlier. India’s Gross Domestic Product (GDP) per capita is 12 percent of the US now, it sounds low but is up from 4 percent. India has the same per capita income that Japan did in the 1960s. And that country made a full transformation,” he said.
Krugman also addressed the hurdles India shall face in the growth story. He said, “It’s not hard to see that India needs institutional progress. India is potentially susceptible to this middle-income track.”
Krugman also listed out three reasons why India needs to be optimistic about its growth.
“India does have a lot of smart people. There is a clearly a cultural reservoir of creativity and entrepreneurship. The widespread fluency of English is important. It matters a lot how many people of working age you have. Japan couldn’t become an economic superpower because of demography. China is starting to look like that. Its working-age population has peaked and will go down. It cannot continue to grow at the pace it did,” he said, adding that India’s working age population is projected to grow substantially and surpass China in a few years.
However, he also noted that it is crucial for India to generate enough jobs for the workforce.
Giving out the second reason, Krugman said, “India is still quite poor and far behind in cutting-edge technology. That’s not a good thing, but that gives it the opportunity to catch up.”
Third, the economist outlined India’s distinct role in the global trade. “Up till India’s rise, all success stories were based on manufacturing. India needs to do more of that, but it also showed large-scale export of services,” he said, adding that the technology to set up manufacturing has been exploited.
Krugman also said that the globalisation of service trade is perhaps the future. “India has the first mover advantage here. We don’t know if this can provide employment on the scale India needs, but the country has the advantage of those returning from the Silicon Valley to set up business here,” Krugman elaborated.