NEW DELHI: In yet another endorsement of the new government's policies aimed at reviving the economy, the OECD has bumped up India's growth forecast for next year citing a pickup in investment because of the improved political situation that stems from the Narendra Modi-led BJP having come to power with a substantial majority that will enable it to undertake reforms.
The country could be within striking distance of China by 2016 in terms of the pace of growth, with that country forecast to slow in the years ahead, according to the OECD (Organisation for Economic Co-operation and Development). But that doesn't mean the central bank can relent in the fight against inflation, it said. This runs counter to the demand for interest rate cuts from companies and some government quarters. OECD expects the Indian economy to expand 6.4% next year compared with 5.9% estimated less than two months back in its September '14 interim outlook.
"GDP will slow in China, but pick up in India and remain sluggish in Brazil and Russia," the Paris-based grouping said in the OECD Economic Outlook released on Thursday that lowered growth targets for the global economy.
Since taking charge, the Modi government has unveiled several policy changes such as deregulating diesel prices, linking gas prices to global benchmarks, amendments to labour policies, steps to end the 'inspector raj' and cutting red tape for businesses. It's expected to unveil further reform measures in the months ahead. Stock markets have boomed, with the key indices rising to records on Wednesday. Thursday was a market holiday.
"Improved business sentiment resulting from reduced political uncertainty, deregulation, and the government commitment to cut red tape should boost growth," OECD said, releasing the forecast ahead of the November15-16 G-20 summit in Brisbane that PM Modi will attend. A detailed forecast will be released on November 25.
"Investment will be the main growth engine, after several quarters of subdued growth," it said, adding that the pace of reforms has picked up in India. Growth is projected to rise to 6.6% in 2016 while China will slow to 6.9% by that year. However, for the current year, India's growth forecast has been cut to 5.4% from 5.7% estimated initially. These numbers are not strictly comparable with India's national headline statistics that are compiled on basis of factor cost and follow a April-March fiscal.
"In India, pickup in growth after the sharp slowdown in 2012-13 will continue despite the tight monetary and fiscal stance," the OECD statement said. The outlook also projects inflation to head lower, but it hasn't backed India Inc's demand for lower interest rates. "The output gap is projected to remain negative, and inflation is expected to continue to drift down as inflations expectations anchor lower," OECD said.
"In India, still-high inflation expectations call for a continuation of tight monetary policy stance," it said separately in its policy prescription.
View attachment 147419
OECD also called for subsidy reforms. "India needs to continue fiscal consolidation, but should also improve its quality, rebalancing expenditures away from subsidies and toward public investment," it said. The organisation projects the global economy will expand 3.3% in 2014 and recover gradually to 3.7% in 2015 and 3.9% in 2016. "We have yet to achieve a broad-based, sustained global expansion, as investment, credit and international trade remain hesitant," OECD secretary general Angel Gurria said.
India's economy likely to grow 6.4% next year; may be a hair's breadth away from China by 2016: OECD - The Economic Times
