OECD pegs India's growth at 5.4 percent this fiscal, urges more reforms

New Delhi, Nov 19 (IANS): Projecting India's growth at 5.4 percent this fiscal and 6.6 percent the year after, the Organisation for Economic Cooperation and Development (OECD) Wednesday said only structural reforms can raise it to 8 percent and beyond.

"Our forecast for 2015 and 2016 is that India's GDP growth will be under 8 percent. The question is how do we get it to 8 percent-plus," OECD's chief economist Catherine Mann said, releasing the Paris-based organisation's India Economic Survey here.

"Structural reforms will raise India's economic growth. In their absence, growth will remain below the 8 percent level achieved during the previous decade," Mann said while listing infrastructure, business environment, labour laws and skill as bottlenecks.

The growth projection for next fiscal is higher than the 5.7 percent predicted earlier.

On the inflation front, the organisation has projected the annual rise at 7.1 percent for this fiscal and 6.3 percent and 6 percent for the subsequent two years as measured by the consumer price index (CPI).

"The inflation rate of 7 percent in the past few years is high compared to other emerging market economies and the OECD area," Mann told IANS on the sidelines of the launch event.

While projecting an average inflation rate of 5.5 percent over the next two years, in what should be music to Reserve Bank of India Governor Raghuram Rajan's ears, Mann said the central bank's price-control measures will bring down "inflationary expectations" - a key dynamic of the phenomenon.

"The gap between expectation and actual CPI does not bode well for projections," she said.

High inflation, large fiscal deficit, massive energy and fertiliser subsidies and delays in passing key tax reforms to ease doing business in India are among the other hurdles to economic growth, OECD said.

Lauding the deregulation of diesel, Mann said: "Simply shifting half of the oil subsidies to the health sector would increase spending on health by 50 percent."

In the short term, lower inflation and smaller deficits are much required, the report said.

"Structural improvements to the business climate are crucial for medium-term growth and in the longer term, health improvement and increased female participation in the labour market will sustain strong and inclusive growth."

The OECD, which is composed of advanced economies, said India should formally adopt a price-control strategy that will help contain inflationary expectations and provide the much-needed support for savings and investment.

This it said in terms of India's policy of inclusive growth and poverty reduction.

"Although absolute poverty has declined, it remains high and income inequality has risen since the early 1990s. Inefficient subsidy on food, energy and fertilisers have increased steadily while public spending on healthcare and education has remained low."

It also suggested implementing indirect tax reforms through the goods and services tax regime, as also a cut in energy subsidies, as part of the wider effort to prune the fiscal deficit.

Exports are constrained by supply-side bottlenecks, while high corporate borrowing and deteriorating asset quality at banks may put the investment recovery at risk, said the report.

It also called for a "simpler and more flexible labour law, covering more workers, coupled with better education and training programmes".



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Title: OECD pegs India's growth at 5.4 percent this fiscal, urges more reforms

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