OECD upgrades India growth forecast to 5.9% for 2009

India’s growth outlook has been revised upwards by the Organisation for Economic Co-operation and Development (OECD) in the wake of recovery signs in the global economy. Global financial major Citigroup also projected higher growth for the Indian economy due to increased investment inflows expected in 2009-10.

In its semi-annual economic outlook released on Wednesday, the Paris-based organisation projected a growth of 5.9 per cent in the current financial year ending March 2010 and 7.2 per cent for fiscal 2010-11, an upward revision of 160 basis points and 140 basis points, respectively.

Though India is not an OECD member, the report mentioned projections about the economy, as well as other non-member countries like Brazil, Russia and China — collectively knows as BRIC.

“With the gradual recovery of the global economy and easier financial conditions, growth is projected to gradually regain momentum,” the OECD report said. Before the latest report, OECD’s projections for India’s growth stood at 4.3 per cent and 5.8 per cent for fiscal 2010 and 2011, respectively.

In a separate report, Citigroup today forecast a 6.8 per cent rise in the Indian economy during 2009-10, higher than its earlier forecast of 5.5 per cent. However, the financial major warned that delay in the monsoons could adversely impact the growth prospects.

Recognising the increased public spending that India provided as the part of the three stimulus packages, the OECD said: “Any further easing in policy should be achieved through lower interest rates, rather than discretionary fiscal expansion.”

The OECD also called for restoring fiscal discipline, speedier structural reform and increase sales of public-sector assets. “The Indian deficit is very high, something we are concerned about,” Jorgen Elmeskov, OECD’s chief economist, told Business Standard.

“The public sector wage increases as well as the debt relief for farmers have constrained the fiscal situation,” he said, arguing that “the new government must consolidate its fiscal situation, otherwise there would be more hurdles for economic growth”.

The report also revised upwards the growth expectations for China. Compared to its earlier forecast of 6.3 per cent in 2009, the OECD has now projected growth of 6.3 per cent, due to monetary and fiscal stimulus that the China undertook.

OECD’s secretary general Angel Gurria, however, expressed confidence that India will be able to sustain the momentum generated over the last couple of years.

He said economic activity in its 30-member countries “now looks to be approaching its nadir” and “the ensuing recovery is likely to be both weak and fragile”.

Further he asked industrialised nations to continue with their expansionary policies, and not to be worried about fiscal imbalance.