India's high GDP growth fails to lift many out of poverty: OECD

01 March 2017

The Indian economy is expanding at a fast pace, boosting living standards and reducing the number of people below poverty line but, despite the high growth, many people have no access to basic necessities like water and electricity and live in unhygienic conditions, according to a new report from the Organisation for Economic Cooperation and Development (OECD).

India's GDP per capita has risen at an annual rate of over five per cent since the mid-1990s and reforms introduced since Prime Minister Narendra Modi's election in 2014 have ''brought a new growth impetus and improved the outlook'', but ''growth has not been sufficiently inclusive on a number of dimensions, as reflected in a still high poverty rate'', the Paris-based group said in its country survey.

The latest OECD Economic Survey of India 2017 finds that the acceleration of structural reforms and the move toward a rule-based macroeconomic policy framework are sustaining the country's longstanding rapid economic expansion.

The survey, released in New Delhi by OECD secretary-general Angel Gurria and India's economic affairs secretary Shaktikanta Das, hails India's recent growth rate of more than 7 per cent annually as the strongest among G-20 countries.

It has projected India's GDP growth to rise from the current levels of around 7 per cent to levels above 7.75 per cent in the 2018-19 fiscal.

It identifies priority areas for future action, including continuing plans to maintain macroeconomic stability and further reduce poverty, additional comprehensive tax reforms and new efforts to boost productivity and reduce disparities between India's various regions.

Speaking on the occasion, Gurria said India provides a welcome counter-point to a global economy that has been under-performing for years. He further said that India has been top performer and reforms are bearing fruit, growth is strong and other macroeconomic indicators are improving. Maintaining the reform momentum will be critical to boosting investment and creating the quality jobs needed to ensure strong and inclusive growth for future generation, with all segments of society benefitting from it, he said.

Shaktikanta Das said that he was pleased to note that the OECD survey considers India as a top reformer in the world and that it acknowledges that the ease of doing business in India has improved. He said the government is well aware about the challenges before it and work is in progress on all recommendations of the survey.

The implementation of the landmark GST reform will contribute to making India a more integrated market. By reducing tax cascading, it will boost competitiveness, investment and job creation.

The GST reform designed to be initially revenue-neutral should be complemented by a form of income and property taxes, the survey suggested.

The survey points out the need to make income and property taxes more growth-friendly and redistributive. A comprehensive tax reform could help raise revenue to finance much-needed social and physical infrastructure, promote corporate investment, enable more effective redistribution and strengthen the ability of states and municipalities to better respond to local needs, according to the survey.

The OECD points out that achieving strong and balanced regional development will also be key to promoting inclusive growth. Inequality in income and in access to core public services between states and between rural and urban areas is currently large across India, while rural poverty is pervasive. Continuing efforts to improve universal access to core public services is essential.

Recent changes in India's federalism model have given states more freedom and incentives to modernise regulations and tailor public policies to local circumstances. Ranking states on the ease of doing business is opening a new era of structural reforms at the state level and will help unleash India's growth potential. Further benchmarking among states and strengthening the sharing of best practices, particularly labor regulations and land laws could add to the reform momentum.

Raising living standard in poorer states will require increasing productivity in the agricultural sector. With employment expected to gradually shift away from the agricultural sector, urbanisation will gather pace. Thus, better urban infrastructure will be needed to fully exploit cities' potential for job creation, productivity gains and improving the quality of life.

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