India must overcome structural challenges to lead in post G-Zero world: Nouriel Roubini

India will have to overcome its structural challenges if it has to lead in a post G-Zero world where no single country will dominate the global economy, noted economist Nouriel Roubini said on Wednesday.

The South Asian nation and other emerging economies will have to take the lead in boosting global growth as the advanced economies are still recovering from the crisis they faced because of high public debt, Roubini said at a conference in Mumbai. The potential of growth in the US, the Euro zone and Japan is low while the Chinese economy is slowing, he said. He added that emerging markets are growing at close to five per cent compared with the 1.5 per cent pace for the advanced economies.

The term "G-Zero world" refers to a situation where neither the Group of Seven industrialised nations nor the Group of 20 emerging economies nor any other group or country will dominate the global economy.

The 55-year-old New York University professor also said that India must control its widening current-account deficit and remove supply-side bottlenecks. The country should also be careful in skirting the temptation to fall back into state capitalism and instead choose to accelerate reforms to facilitate participation of private-sector companies, he said.

Roubini said growth will have to come not only in terms of being a market for the world's corporations but also in terms of innovation in information technology, biotechnology, health-care and energy through active participation from India's private sector.

The comments come at a time when the Indian economy is growing at its slowest pace in nearly a decade. Growth has slowed due partly to policy inertia and because of high interest rates that have choked demand and industrial output. The central bank, however, has now initiated a cycle of rate cuts after 13 increases, the longest in the history of post-reform India. A recent easing in inflation has prompted analysts to forecast more rate cuts. Goldman Sachs revised its interest rate projection on Tuesday. It expects the central bank to cut interest rates by half a percentage point by mid-2013, Tushar Poddar, Managing Director and Chief India Economist at Goldman Sachs, said in a note. The house previously projected the central bank to cut rates by that quantum in the first quarter of 2014.

Indian policymakers' problems have been compounded, however, because of the bloated current-account deficit. The gap has widened because of rising imports, stagnant exports and a weak rupee. The deficit is likely to be more than five per cent of gross domestic product for the fiscal year ended March 2013. This is nearly double the level that authorities say they are comfortable with. Roubini shot to limelight in the 1990s with his analysis on how a high current-account deficit, when compounded with large overseas loans, can create significant stress on emerging economies.

Roubini, who says he has his first conversation about a country's economy with the taxi driver driving him out of the airport, had a solution to curb the widening deficit, the difference between national savings and investment. India must increase public savings and raise labour productivity to narrow the gap, he said.