OECD scales down India growth projections for 2015, 2016

The think tank scales down earlier projections for the economic expansion to 7.3% from the previous estimate of 7.7%

The Paris-based Organisation for Economic Cooperation and Development (OECD), said on Wednesday that India’s economic growth would remain “strong and stable” but scaled down earlier projections for  the  economic expansion to 7.3 per cent from the previous estimate of 7.7 per cent. The projection for 2016 was cut to 7.4 per cent from the earlier forecast  of eight per cent.

The grouping had in its Interim Economic Assessment report, issued in March, given the earlier estimates. India's economic growth was 7.5 per cent in the first quarter  of 2015. This implies that 7.3 per cent economic expansion in 2015 would mean lower growth in the  next  nine months.

Also, the government’s Economic Survey had projected India’s expansion in gross domestic product in the range of 8.1-8.5 per cent in 2015-16, much of which would fall in calendar year 2015. OECD has projected 7.4 per cent growth even in 2016.

India’s economic growth is projected to remain “strong and stable” on the back of revival in investments, even as more reforms are needed to reduce uncertainties over taxation norms, OECD said. It felt the decline in oil prices would reduce pressures on the current account deficit, inflation and subsidies.

Their projection came a day after the Reserve Bank of India (RBI) flagged concerns about monsoon and inflation that would have an impact on economic growth.

OECD, a grouping of 34 countries, said investment failed to rebound in 2014, reflecting poor infrastructure and delays in administrative procedures. “To revive corporate investment, further reforms are needed to reduce uncertainties surrounding land acquisition and tax regulations and to improve the quality of electricity and transport systems,” it said.

The 2015-16 fiscal consolidation target has been relaxed to allow for increased infrastructure investment, while structural reforms to improve the ease of doing business and the Make in India initiative should boost corporate investment, OECD added.

“The reduction in inflation expectations provides room for monetary easing. Addressing non-performing loans would strengthen monetary policy transmission,” it said.

According to OECD, improved public spending efficiency and increased revenue are required to fund needed public investment in physical and social infrastructure in India.

Fiscal consolidation would also make room for the authorities to reduce requirements on banks to hold government bonds, which would release funds for private credit.

Adding: “Subsidy to food, fertiliser and oil products should be better targeted, and the envisaged sales tax (GST) and corporate tax reforms should be implemented swiftly.”