OECD ups India growth outlook, urges structural reforms

Expects Indian economy to grow by 6.6% in 2015, up from 5.7% earlier

India's economy will accelerate in 2015 but will fail to attain the heady growth rates of the past decade without sweeping structural reforms, the Organisation for Economic Cooperation and Development said on Wednesday.

In a country survey, the Paris-based think tank forecast that Asia's third-largest economy would grow by 6.6% in 2015, up from its last forecast of 5.7% growth in May.

Growth would edge higher to 6.8% in 2016, it said.

"The economy has shown signs of a turnaround and imbalances have lessened," the OECD said in the report which, while providing comfort to Prime Minister Narendra Modi that things are looking up, highlighted tough choices ahead.

Modi's election by a landslide earlier this year has lifted business confidence, while fiscal consolidation and easing pressures on inflation and the current account deficit all point in the right direction.

In its latest forecast, the OECD said it expected inflation to fall to 5.4% in 2015 and nudge higher to 5.6% the following year, after 6.9% in 2014. In May, it forecast that inflation would remain above 6% over the next few years.

Yet while current risks are broadly balanced, the medium- term outlook is less bright. Exports are constrained by supply-side bottlenecks, while high corporate borrowing and deteriorating asset quality at banks "may put the investment recovery at risk", the report added.

Huge barriers to growth, from infrastructure bottlenecks to restrictive labour laws to weak education, will hold India back if not addressed.

"Structural reforms would raise India's economic growth. In their absence, however, growth will remain below the 8% achieved during the previous decade," the OECD said in the 158-page report.

In its key recommendations the OECD said India should:

• Improve the macroeconomic framework by introducing flexible inflation targeting, pursuing fiscal consolidation, implementing a national value-added tax and strengthening banking oversight.
• Boost manufacturing jobs by simplifying labour laws, improving access to education, accelerating approvals for infrastructure projects and improving the business climate.
• Increasing female economic participation by ensuring equal work opportunities for women and expanding access to education and skills training for female entrepreneurs.
• Improving access to, and the quality of, healthcare.

The OECD tracks its 34 advanced economy members, in addition to issuing forecasts and surveys of large non-member countries like India.