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India better positioned than China for growth: Krugman

The Indian economy has the potential to grow significantly, but a political struggle by the government to implement reforms may pose…

The Indian economy has the potential to grow significantly, but a political struggle by the government to implement reforms may pose a challenge, Nobel laureate and economist Paul Krugman said on Tuesday, echoing similar sentiments expressed by the International Monetary Fund (IMF) and a study released at the World Economic Forum (WEF) on the same day.

The American economist said he is “optimistic” about India’s growth potential as India didn’t face challenges surrounding an economic transition like China did. He pointed out that the structural transition being attempted by China to become a consumption-driven economy from an investment-driven economy may lead to a “nasty recession”. This could throw up opportunities for India, which is in the process of implementing structural reforms.

A study by research and analysis firm IHS, released at the WEF in Davos, observed that India’s economy was likely to grow faster than that of China’s in the next few years. IMF, in its world economic outlook issued on Tuesday, forecast that India’s economy would grow at 6.3% in 2015 and at 6.5% in 2016, overtaking China’s projected rate of growth. In 2014, China’s growth of 7.4% outpaced India’s 5.8%.

Krugman stated that instances of “attempts by well-meaning executives blocked by an obstructionist legislature” were prevalent in other countries like the US as well, and sometimes it was worse there.

Commenting on RBI’ssurprise move to cut repo rates by 25 basis points, Krugman said that he viewed RBI governor Raghuram Rajan as an “inflation hawk”, who ran the risk of “overdoing” the fight against inflation. “But the rate cut has happened and maybe it will continue,” he added.

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