June 3 (Bloomberg) -- Stephen Roach, chairman of Morgan Stanley Asia, is more optimistic about economic growth prospects in India than China, saying the country may outperform others in the Asia-Pacific region.

“India is a more balanced economy than the rest of export- led Asia,” Roach told reporters in Mumbai today. “India could actually outperform at the margin the rest of the region.”

The country’s benchmark stock index has climbed 22 percent since the May 16 re-election of Prime Minister Manmohan Singh’s government without the need of support from the Communist parties, who had blocked economic reforms during the previous term. That may embolden Singh to push for higher overseas investment limits in the pension and insurance industries, apart from selling stakes in state-run companies.

“The recent election changes the prospects for reforms,” Roach said. “What has been missing in this interplay between the micro and the macro has been the political impetus to reforms.”

The Indian economy stabilized in the first quarter, maintaining the 5.8 percent pace of expansion recorded in the preceding three months. Growth in China’s gross domestic product slowed to 6.1 percent from 6.8 percent in the same period, owing to the dependence on overseas sales.

“China faces major challenges for the first time in 30 years,” Roach said. “It pushed its export-led model too far, leaving it too dependent on the external climate.”

Growth Forecast

Morgan Stanley on May 28 raised India’s growth forecast to 5.8 percent in the fiscal year to March 31, 2010, from an earlier estimate of 4.4 percent. The economic growth in the $1.2 trillion economy may turn out to be the real surprise in Asia, Roach said.

Six interest-rate cuts in seven months and fiscal stimulus measures are providing the nation with a boost worth almost 7 percent of gross domestic product, according to the central bank.

The central bank forecasts the economy will grow 6 percent in the fiscal year that started April 1, compared with average growth of 8.5 percent in the previous five years. India’s fiscal year runs from April 1 to March 31.

The economy won’t get back to an 8 percent pace of growth for two years, Roach said.

Prime Minister Manmohan Singh secured re-election last month, with his Congress party getting 206 lawmakers of its own. That’s the most since 1991, when Singh as finance minister abandoned Soviet-style state planning and introduced free-market policies that helped India’s economy quadruple in size.

Selling stakes in state-run companies is important for the nation to reduce its fiscal deficit, Roach said. India’s fiscal deficit widened to a seven-year high of 6.2 percent in the fiscal to March 31 as government borrowed more to fund fiscal stimulus packages.

To contact the reporters on this story: M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net; Kartik Goyal in New Delhi at kgoyal@bloomberg.net.

Last Updated: June 3, 2009 07:39 EDT