OECD cuts FY 17 GDP growth rate to 7%

Global think tank Organisation for Economic Cooperation and Development (OECD) on Tuesday cut India’s economic growth forecast for 2016-17, to 7% in the wake of demonetisation but said the long run the move will help the country achieve greater consumer protection.

“India will never be the same again post demonetisation,” OECD Secretary-General Angel Gurria said launching the OECD’s Economic Survey of India here.

He said the note ban will help the country move to a less-cash society, greater financial penetration and better consumer protection.

The survey, however, underlined the need for a comprehensive tax reforms and effective implementation of Goods and Services Tax  (GST) for India’s inclusive economic growth.

It said, investments in India is still held back by the relatively high corporate income tax rates, a slow land acquisition process and regulations which remain stringent in some areas.

It also drew attention to weak corporate balance sheets, high non-performing loans which weigh on banks’ lending, and infrastructure bottlenecks.

“High corporate income tax rates and a narrow base distort the allocation of resources, discourage foreign investment and make tax evasion and avoidance more attractive. Tax disputes are frequent and long to resolve. Staff numbers and training levels are low in the tax administration,” the survey said.

It suggested the government implement gradual reduction in the corporate income tax from 30% to 25% while broadening the tax base. It also urged the government to provide certainty regarding tax rules and their implementation. “There is no time for complacency. The reform momentum must be maintained,” Gurria said.

The survey said that job creation in the organised sector has been sluggish. Female participation is low and many young people are out of work and not in education or training.

Labour regulations are complex and  a large number of workers, particularly in the informal sector, are not covered by core labour laws and social insurance programmes.