Thursday, 20 November 2014

OECD ups India’s growth outlook; lower inflation forecasts

In an encouraging development for the country, the Organization for Economic Cooperation and Development (OECD) pointed that economy is coming out of its worst slowdown in a quarter-century and implementation of new reforms held the key for putting the economy on a strong and sustainable growth path of 8%.
The Paris-based think-tank pegged India’s growth rate, which languished at below 5% for the last two fiscal due to high interest rates, stubborn inflation and weak investment to grow by 6.6% in 2015-16, up from its last forecast of 5.7% growth in May and to edge higher to 6.8% in 2016-17.
It, however, emphasized to achieve 8% growth rate, the economy would have to undertake sweeping reform measures, like switching subsidy spending to social and physical infrastructure, bringing in tax reforms, cleaning up the banking system to free up funds for infrastructure and reducing structural barriers for job creation by bringing in labour reforms among other things.
The Paris-based think-tank also pushed for early implementation of the goods and services tax (GST) to improve public finances and also stressed on the need for India to improve the quality of its fiscal consolidation both by the Centre and the states.
In yet another positive, the OECD, in its latest forecast, pegged inflation to fall to 5.4% in 2015-16 and nudge higher to 5.6% the following fiscal year, after 6.9% in 2014-2015. In May, it forecast that inflation would remain above 6 percent over the next few years.
Notably, OECD in its key recommendations suggested that India to Improve the macroeconomic framework by introducing flexible inflation targeting, pursuing fiscal consolidation and implementing a national value-added tax and strengthening banking oversight. OECD also added that it could boost manufacturing jobs by simplifying labour laws, improving access to education, accelerating approvals for infrastructure projects and improving the business climate.

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