OECD estimates 7.3% growth in FY18

Says demonetisation to have long-term benefits

The Organisation for Economic Cooperation and Development (OECD) grouping has estimated India’s economy to grow by 7.3 per cent in 2017-18 and 7.7 per cent the year after.

It believes the currency demonetisation’s impact will be only slight on the expansion. The official growth projection for the current financial year economy is 7.1 per cent, against 7.9 per cent a year before.

In a report titled Economic Surveys: India, the OECD says implementing of demonetisation has had transitory and short-term costs but should have long-term benefits. At the launch, the government’s Economic Affairs Secretary, Shaktikanta Das, said the positive effects of demonetisation would be visible from April. Completion of remonetisation will drive consumption.

“The impact was mostly on consumption and that was temporary. From the next quarter, the benefits and outcomes — in the long- and medium-term — are going to be very, very 

positive,” Das said.

The OECD prescribes that India bring down its corporate tax rate to 25 per cent, introduce an inheritance tax and provide certainty in rules. And, that government-owned banks be recapitalised to strengthen their balance sheet, their consolidation promoted, the government’s equity in these be brought below 51 per cent and the obligation on banks to lend to the priority sector and hold government bonds be reduced. Risks to the banking sector remain elevated, with the continuous deterioration in asset quality, low profitability and liquidity. Slower efforts to clean up banks’ balance sheets and recapitalise government banks would raise uncertainties and have a bearing on investment. 

Some risks are interconnected. If the Reserve Bank of India increases interest rates to address the inflation risk, the sustainability of corporate debt could be affected, it warns. 

Nor is India immune to external shock. “The global economy is growing at three per cent; before the 2008 financial crisis, it was four per cent,” OECD Secretary-General José Ángel Gurría said later in the day in an interaction at the Confederation of Indian Industry. He added that in the past eight years, economic growth hadn’t recovered to reach the ‘cruising speed’.