OECD: India to see relatively robust growth at 7.2% in FY16

The Indian economy is expected to expand by 7.2 per cent this financial year, lower than 7.3 per cent recorded in the previous year, economic grouping of developed nations, Organisation for Economic Co-operation and Development (OECD) said on Monday. It said difficulty in passing key structural reforms and large non-performing loans are holding the growth back, though the projected expansion is relatively robust in the context of global growth.

In its latest economic outlook report, it retained India's economic growth, but cut the global growth forecast for the current year to 2.9 per cent citing a "further sharp downturn in emerging market economies and world trade". The growth rate for India projected by the Paris-based OECD, which comprises high income countries like the US, Australia, Japan as well as most European nations, would mean lower growth rate in 2015-16 than 7.3 per cent recorded in 2014-15.

OPTIMISM

• The Indian economy is expected to expand 7.2 per cent this financial year, lower than 7.3 per cent recorded  in the previous year,  OECD said on Monday
• It  said difficulty in passing key structural reforms and large non-performing loans are holding the growth back
• But the projected expansion is robust in the context of global growth

OECD put future growth projection for 2016-17 at 7.3 per cent and 7.4 per cent for the succeeding year. However, the figures will be achievable only if structural reforms are further implemented, it cautioned. The report said rising public investment complemented by faster clearance of key projects has boosted growth. The private sector, on the other hand has increased investments due to better infrastructure and greater ease of doing business.

Better wages and benefits public employees were responsible for supporting private consumption, it added.

"Even so, large non-performing loans, high leverage ratios for some companies and difficulty in passing key structural reforms are holding the economy back. The current account deficit is widening as machinery imports increase, but is largely financed by rising foreign direct investment inflows," the report said.

According to government estimates, India's economic growth slowed to 7 per cent in the three months ended June compared to 7.5 per cent expansion recorded in the January-March quarter.

While cutting the world economic growth estimate to 2.9 per cent for this year, OECD projected a gradual strengthening of global growth in 2016 and 2017 to 3.3 per cent and 3.6 per cent, respectively.

Saying Brazil and Russia have experienced recessions and will not return to positive growth until 2017, it added, "A smooth rebalancing of activity in China and more robust investment in advanced economies is required,"

China's growth is expected to slow to 6.8 per cent this year and continue to decline gradually reaching 6.2 per cent by 2017 as activity rebalances towards consumption and services.

Saying fiscal policy is assumed to remain supportive, OECD added public investment in energy, transport, sanitation, housing and social protection sectors is critical to raising living standards for all and can be financed through tax reform and reductions in subsidies.

"The remaining slack in the economy and the disinflation process will provide room for some monetary easing by the end of the projection period, the report said.

Job creation, further improvement in ease of business, modernising labour regulations and implementing the goods and services tax were prescribed by OECD.

It also noted despite recent hikes in coal, petrol and diesel duties, average effective tax rates on CO2 emissions remain relatively low with high levels of subsidy on kerosene and cooking gas. It said such subsidies should be reduced.