The OECD (Organization for Economic Cooperation & Development) Economic Survey of India released in New Delhi last week sets the Indian growth story in a solid and sustainable growth path. However, it has raised concerns about the lagging private corporate investment and industrial production. India’s growth story is mainly driven by consumption. With the reforms to simplify taxation, strengthen the ease of doing business and upscale the infrastructure investment, the report is hopeful about modest growth recovery after witnessing a loss of momentum. However, the creation of high quality jobs and stagnating rural income have remained as crucial challenges.
The lack of economic convergence across Indian States – that is, poor states not “catching up” with rich states – needs urgent attention to stem widening “within country” inequalities. While launching the report, OECD Chief Economist Laurence Boone, said that “India is now well established as a growth champion in the global economy”. India needs both cyclical and structural reforms to recover economic growth.
THE OECD Economic Survey projects India’s growth at 6.2 per cent in 2020 and 6.4 per cent in 2021. The report noted that restoring growth from present 5.8 per cent in 2019 requires revival of exports and investment. The new approach to federalism, along with financial inclusion initiatives, improving the financial sector through addressing the issues of Non-Performing Assets (NPA), initiating better targeted household transfers, proper implementation of the Bankruptcy Code, implementation of GST and corporate taxation reforms are the highlighted structural reforms in the report.
On the external front, OECD report noted that reducing restrictions to “trade in services” would boost the economy. OECD estimates suggest that India’s share in global goods and services exports has increased from 0.5 per cent in early 1990s to 2.1 per cent in 2018. The main drivers to this growth have been information technology and pharmaceuticals.
The OECD report highlighted that reforms like creating fiscal space for physical and social infrastructure, modernizing labour laws, employing more women in the economy, improving the financial sector, reducing trade restrictions, strengthening rent regulations and property rights to ensure affordable housing for all can revive the growth trajectory.Addressing the social challenges like income inequalities and strengthening the work force participation of women are addressed with concern in the report. The report noted that the government has launched various social welfare policy initiatives like eliminating open defecation – almost 100 million toilets built since October 2014 – has helped in improving health outcomes. The report also noted that to empower women, a programme has been introduced to reduce female infanticide and educate girls. However, there are challenges further to improve equity along with economic growth.
The OECD report noted that ‘greening growth’ to improve well-being and limit climate change needs more emphasis. Air pollution is high and will increase in the absence of bold action, noted the report. Indoor air pollution is also a major cause of premature deaths in India. Though the government has taken steps to subsidize clean gas connections to poor, a lot to do more in terms of implementation. Out of ten cities in the world most affected by air pollution in the world, nine are in India.
The OECD Economic Survey of India report was presented before India’s Chief Economic Adviser K Subramanian and senior officials of the Ministry of Finance.
The OECD report also lauded India’s achievement in taming inflation through the new monetary policy framework of inflation targeting, and the rising participation of India in the global economy. The key recommendations of the OECD report include improving the macro-economic policies and governance, boosting investment, addressing social inequities, improving participation in global economy, enhancing property ownership and affordable housing and promoting green growth.
Script: Dr. Lekha S Chakraborty, Professor National Institute of Public Finance & Policy