Reforms to guide India back to growth path: OECD

Reforms to guide India back to growth path: OECD

GDP should grow by more than 6.5% annually in future

Reforms to guide India back to growth path: OECD

The Indian economy is showing signs of a turnaround, and the 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, according to the latest OECD Economic Survey of India.

The results of the survey released in New Delhi by OECD Chief Economist Catherine L Mann and Chief Economic Adviser to the Government of India Arvind Subramanian noted that India has slowed more than many other countries since 2011, but is now recovering faster.

India’s GDP should grow by more than 6.5 per cent annually in the coming years.

“Investment and exports are driving the rebound, but growth will be sustained at a stronger pace if further steps are taken. In the near term, stable and lower inflation and smaller deficits are needed,” Mann said.

She said structural improvements to the business climate are crucial for growth in medium term, while in the longer term, health improvements and increased female participation in the labour market will sustain inclusive growth.

“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 said.

“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 well being for all Indians.”

The OECD survey suggested that India formally adopt a flexible inflation-targeting framework, which will help contain inflation expectations and provide support for saving and investment.

It also suggested 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 drew attention to long-term challenges facing India, notably the need to create better quality jobs for those currently working in the informal sector, and 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,” Mann said.

The survey also discussed the need for a simpler and more flexible labour law, covering more workers, coupled with better education and training programmes. It said that India’s reform agenda should also seek to increase women’s economic participation rates, which are often drastically below those of men.

It noted that gender-specific policies 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, OECD said.