The Organization for Economic Cooperation and Development (OECD), which issued its India economic survey on Wednesday, forecast the country’s FY15 gross domestic product (GDP) growth at 5.4 per cent and 6.6 per cent for FY16.
To achieve these, it said, the Narendra Modi government would have to push through wide-ranging reforms. “The economy is showing signs of a turnaround. New reforms, some of which are included in the package presented by Prime Minister Narendra Modi, need to be implemented to put the country on a path to strong, sustainable and inclusive growth,” the Paris-based body said in its report.
The survey, released by OECD chief economist Catherine Mann, says the economy, after a decade of strong growth, saw a period between 2012 and 2014 when this faltered and inflation, the current account deficit and the fiscal deficit shot up, and large projects got stuck. “The Indian economy is coming out of some tough times in recent years, with a steep decline in growth, stubbornly high inflation and a wide current account deficit but the situation is improving,” said Mann. “Key reforms in the business environment, to labour markets and to infrastructure will bring economic growth back to the higher levels seen in the recent past, create good jobs and improve wellbeing for all Indians.”
OECD said investment and exports are driving the rebound but growth will be sustained at a stronger pace only if further steps are taken. “In the near term, stable and lower inflation and smaller deficits are needed,” it said.
To achieve eight per cent annual growth over the longer term, India will have to switch subsidy spending to social and physical infrastructure, bring tax reforms, clean the banking system to set free funds for infrastructure, and reduce structural barriers for job creation by labour reforms, the report said.
Among its recommendations, the OECD suggested early implementation of the proposed goods and services tax to improve public finances. And, the need to improve the quality of fiscal consolidation, both by the Centre and the states.
Predicting inflation would fall to 5.4 per cent in 2015-16 and nudge higher to 5.6 per cent the following year, the Survey stressed the need for a flexible targeting framework. It suggested shifting public spending away from subsidies and towards investment in physical and social infrastructure, and said the government should avoid one-off measures and cuts in capital spending.
It also wanted the reform agenda to seek to increase women’s economic participation rates, often well below those of men. Gender-specific policies, including better implementation of gender-related laws on employment and wages, will be necessary to enlarge economic opportunities for women but the long-term impact could be significant. “More and better jobs for women would raise equity and boost growth by over two percentage points annually,” the report said.
Further, it said it would be critical for India to reduce barriers for growth in manufacturing, which has contributed relatively little to growth of GDP or exports.