Indian Prime Minister Narendra Modi. Photo courtesy of Bharatiya Janata Party (BJP).
India’s 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 in order to put the country on a path to strong, sustainable, and inclusive growth, according to the OECD’s latest Economic Survey of India that was released on Tuesday.
The OECD’s India Survey, which was presented on Tuesday in New Delhi by OECD Chief Economist Catherine L. Mann and Arvind Subramanian, Chief Economic Adviser to the Government of India, notes that India’s economic growth had slowed more than many other countries since 2011, however it is now recovering faster. India’s GDP should grow by more than 6.5% annually in the “coming years”, according to the OECD.
Economic growth in India is expected to expand 5.4% in fiscal year 2015 – up from 5.0% from the previous year – and economic growth is expected to expand 6.6% in fiscal year 2016, according to the OECD, whom noted that these figures were computed on a market-price basis.
India’s rebound has been driven by Investment and exports, however growth will be sustained at a stronger pace if further steps are taken, according to the OECD.
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 labor market will sustain strong and inclusive growth, according to the report.
“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,” Ms Mann said.
“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,” Ms Mann added.Reducing barriers to manufacturing growth, which has contributed relatively little to growth in the nation’s Gross domestic product (GDP) or exports, will be critical, the OECD said.
In the Survey, the OECD identifies policies which it sees as critical for future economic growth in India: formally adopting a flexible inflation-targeting framework – which will help contain inflation expectations and provide support for saving and investment, implementation of 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 OECD Survey draws attention to longer-term challenges facing the nation of 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 labor force over the coming decades.
The OECD survey also discussed the need for India to introduce a simpler and more flexible labor law, covering more workers, coupled with better education and training programs.
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 economic 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.
Read the OECD’s full 158-page report, Economic Survey of India 2014
Courtesy of OECD
© 2014 OECD
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