Highly appreciative of the administrative measures taken by the new Indian government, Bhagwati believes that Modi would be able to address problems of large-scale unemployment by promoting labour-intensive investments.
In an interview to Bloomberg News TV, the Columbia University professor, however, said that because of BJP's opposition to multi-brand retail it is unlikely that Wal-Mart would be visible in India soon.
"The new Prime Minister, his DNA is that of the Gujarat state, which is also where I come from. Which is a practical approach to trade and investment. So he's loosened up trade a great deal in his own home state and on the direct investment, on equity investment, he's also been, we've had one-stop shopping actually within a week he would clear investments," Bhagwati said.
"Now he is scaling it up at the national level," he said.
When asked about Wal-Mart's India presence, Bhagwati said: "I think it will happen soon."
"But it won't happen right away because the Prime Minister's party is often supported by small retailers who are actually complaining about the inability to compete with big firms like Wal-Mart."
The top economist based in New York, said Modi would address unemployment "by promoting a whole lot of labour-intensive investments".
Bhagwati said it is possible to combine modern technics with labour-intensive methods of production.
"These are not necessarily alternatives...before Modi came in (it) was (considered) to go in for highly capital intensive projects."
"They were not necessarily more efficient but they just used up a lot of capital and did not create enough impact," he said.
"And alongside this, there was of course a lot of regulation which prevented the small funds from expanding," Bhagwati said.
The top Indian-American economist said: "So we got to eliminate the labour law but the Prime Minister has said that's what he's going to do. And it's a bit like clearing up after a Tsunami."
"We have just had our 120 days and what he's done so far is quite remarkable," he said.
He said "fantastic" when asked about the 300 new investments coming to India.