"Don't go back (to) Licence Raj regime... country Like India might want to have a deliberate policy for fostering industries," he said.
The licence raj, which involved an elaborate system of licences and regulations that were required to set up and run businesses in the country, was dismantled with the liberalisation policy introduced in 1991.
Replying to a question on why India is not well in labour-intensive industries, Krugman said India is not as well suited as some other players are to produce labour-intensive manufacturing products.
"Internal geography (of India) may be one of the reason...Indian does have a kind of non-industrial ecology," the eminent economist noted.
He further said India does not have a great transport infrastructure and that is going to pose some problems.
Krugman pointed out that India has not really done well in the labour-intensive aspects, but the country was very successful in the services sector and high skill manufacturing.