OECD sees Indian economy growing at 6.5% in 2015-16

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19 November 2014

The Indian economy is showing signs of a turnaround thanks to new reforms, some of which are included in the package presented by Prime Minister Narendra Modi, but the economy will fail to accelerate without sweeping structural reforms, the Organisation for Economic Cooperation and Development (OECD) said on Wednesday.

OECD said India's GDP would grow by more than 6.5 per cent in the coming year (2015-16), up from its previous forecast of 5.7 per cent.

The Paris-based think tank forecast growth in Asia's third-largest economy would edge higher to 6.8 per cent in 2016-17.

With further structural measures, the Indian economy will enter a path to strong, sustainable and inclusive growth, according to the latest OECD Economic Survey of India.

The survey, presented in New Delhi by OECD chief economist Catherine L Mann and Arvind Subramanian, chief economic adviser to the Government of India, notes that India slowed more than many other countries since 2011, but is now recovering faster. Investment and exports (although showed a declining trend in recent times) are expected to drive the rebound, but, over the longer term, growth will be sustained at a stronger pace if further reforms are initiated, OECD said.

In the near term, stable and lower inflation and smaller deficits are needed. Structural improvements to the business climate are crucial for medium term growth, and in the longer-term, health improvements and increased female participation in the labour market will sustain strong and inclusive growth, according to the survey.

''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 now improving,'' Mann stated in the survey report.

''Key reforms in the business environment, to labor markets and to infrastructure will bring economic growth back to the higher levels seen in the recent past, create good jobs and improve well-being for all Indians.''

OECD says India should formally adopt a flexible inflation-targeting framework, which will help contain inflation expectations and provide support for saving and investment. It also suggests implementing a broad national value-added tax (GST) and cutting energy subsidies, as part of wider efforts to put public finances on a stronger footing.

The survey draws attention to the long-term challenges facing India - notably the need to create better-quality jobs for those currently working in the informal sector, as well as to provide employment for the massive influx of young people into the labour force over the coming decades.

Reducing barriers to manufacturing growth, which has contributed relatively little to growth of GDP or exports, will be critical. The survey discusses the need for a simpler and more flexible labour law, covering more workers, coupled with better education and training programmes.

India's reform agenda should also seek to increase women's economic participation rates, which are often drastically 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 2 percentage points annually, the OECD said.

Ensuring better living conditions for all Indians - notably access to sanitation - and putting additional public resources into health care would improve health outcomes and contribute to more inclusive growth and well-being, the OECD said.

The OECD, besides tracking its 34 advanced economy members, also surveys major non-member countries like India to assess overall growth potential.





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