New Delhi: Investments in the rural economy and scaling up manufacturing are essential for India to meet the demand for jobs from a dramatic surge in working age population, according to Paul Krugman, who won the Nobel Prize in economics in 2008 for his work on international trade theory. In an interview during a visit to India for the News18 Rising India Summit, Krugman spoke about the trends in global economy, protectionism and the challenges facing Asia’s third-largest economy.

Edited excerpts: I approve of reducing the headline rate. The US had a headline rate of 35% until last fall, which was high by international standards.

The effective rate was about 15% and it was very uneven as some companies could exploit some loopholes that others could not. Also Read: Services exports give India an edge in world trade but AI a speed breaker: Paul Krugman What we should have had was a tax reform that simultaneously lowered the headline rate and raised the effective rate.

Some of the European countries have done that but the US has not. My guess is that when all is said and done, the economic impact of all of this is going to be less than what the advocates (of tax cuts) think.

Investments will not go up very much. The very early indications from the US is that orders for new equipment have not moved up at all. Read more from…

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