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India Showing Signs of a Turnaround: OECD
Jan 16, 2015

According to the OECD Economic Survey of India, India’s economy is coming out of its worst slowdown in a quarter-century, but implementation of new reforms will be key to putting it on a strong and sustainable growth path of 8 per cent.

Salient Features of the Report

  • India’s growth rate, which has languished at below five per cent for the last two fiscal due to high interest rates, stubborn inflation and weak investment, will grow by 6.6 per cent in 2015-16, up from its last forecast of 5.7 per cent growth in May 2014.

  • The economy is to expand by 5.4 per cent this fiscal. India is recovering faster than other economies which faced slowing growth. GDP growth would edge higher to 6.8 per cent in 2016-17.

  • But to achieve 8 per cent growth, India will have to switch subsidy spending to social and physical infrastructure, bring in tax reforms, clean up the banking system to free up funds for infrastructure and reduce structural barriers for job creation by bringing in labour reforms.

  • OECD pushed for early implementation of the Goods and Services Tax (GST) to improve public finances and also stressed on the need for India to improve the quality of its fiscal consolidation both by the Centre and the states.

  • Predicting inflation to fall to 5.4 per cent in next fiscal and nudge higher to 5.6 per cent in the following year, the OECD Survey stressed on the need for India to adopt a flexible inflation targeting framework. Inflation in 2014-15 was pegged at 6.9 per cent.

  • Structural reforms would raise India’s economic growth. In their absence, however, growth will remain below the 8 per cent rate achieved during the previous decade.

  • Infrastructure bottlenecks, cumbersome business environment, complex and distorting taxes, inadequate education and training and outdated labour laws are increasingly impending growth and job creation.

  • India should formally adopt a flexible inflation-targeting framework, which will help contain inflation expectations and provide support for saving and investment.

  • Gender-specific policies, including better implementation of gender-related laws on employment and wages, will be necessary to enlarge economic opportunities for women.

  • More and better jobs for women would raise equity and boost growth by over 2 percentage points annually.

  • It will be critical for India to reduce barriers to manufacturing growth, which has contributed relatively little to growth of GDP or exports.

  • Also there is a need for better quality jobs for people working in informal sector as well as to provide employment for massive influx of young people over the coming decades.


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