"India is doing a good job and has been pursuing a balanced and cautious policy," Stiglitz said.

Nobel Prize winner in economics in 2001, Stiglitz, who was delivering a lecture in the Indian Statistical Institute (ISI) here, said that a government needed to play an important role 'in any economy correcting pervasive market failures'.

"If India manages its policy well and also guards itself against the outblown financial sector, then the country will be able to manage growth on the face of a global slowdown," Stiglitz said.

Referring to the recession of 2008, he said that it showed the fallacy of the proposition that markets were efficient and stable.

He said that the crisis revealed the deficiencies of the US central bank and regulatory institutions.

"Countries without independent central banks performed better in the crisis," he said.

Stiglitz, a professor at the Columbia University in the US, said, "Our institutions were bad. The central bank in US was an embarrassment,'' he said in connection with the global recession which had originated in the US.

He said that there was a need for the government and the markets to play a balanced role in development.

He said that a major failure on the part of governments was not to restrain the markets.

"There was a large problem of corporate governance," he said.

Stiglitz said that one of the roles of the government was to restrain excesses of the markets.

In this regard he praised governments in East Asia which played an important role in restraining the market excesses.

Saying that there was a need to think beyond the GDP, he said, "GDP is not a good measure. Development has to be inclusive, sustainable and democratic and should focus on increasing the well being of all."

He said that Bhutan was following a better policy in pursuing Gross National Happiness as an alternative parameter of development than GDP.

"Even the planning commission of Bhutan is termed as Gross National Happiness Commission," he observed.

In case of market failures, Stiglitz said it would be optimal to impose some subsidies even if taxes were distortionary.

He also dispelled the notion that trade liberalisation often led to increased growth.