World Economy

OECD Cuts India Growth to 7%

OECD Cuts India Growth to 7%OECD Cuts India Growth to 7%

The Organization for Economic Cooperation and Development on Tuesday cut India’s growth forecast to 7% for 2016-17 in view of demonetization, but said the pace will accelerate to 7.3% in the next fiscal. It had in February last year projected the country’s economy to expand at 7.4% in 2016-17.

“India has been a star performer in gloomy times. We do not have many cases of 7% growth... It is a top reformer among all the G-20 countries,” OECD Secretary-General Angel Gurria told reporters in New Delhi, PTI reported.

The organization forecast the country’s economic growth to rise further to 7.7% in 2018-19.

While the Reserve Bank and the Economic Survey of Finance Ministry have projected India to grow at 6.9% and 6.5% in the current fiscal, the International Monetary Fund estimates it to be 6.6%.

While complimenting India for its initiatives towards modernizing bankruptcy laws and giving states power to undertake reforms, Gurria, cautioned against complacency by policy makers.

“There is no time for complacency. The reform momentum must be maintained,” he said, while suggesting that India should take steps to revise the labor laws, handle banks’ stressed assets and ease stringent product regulations.

Supporting India’s move to demonetize high value currency notes, Gurria said the move might have impacted consumption pattern in that quarter (October-December 2016), but its impact will continue to “bite” in the coming quarters.

“Demonetization is a very short term mechanism with a visible effect. India will never be the same again post demonetization... You are moving towards a much less cash society. This will not affect investment or jobs,” he said.

Demonetization impact has begun to fade and consumption growth is now returning, he said.

Gurria said India has taken important steps to fight the illegal economic activity through a series of steps. “Demonetization may have inflicted short term impact on growth, but in long term its effect would include important gains going forward,” he said.

With regard to goods and services tax, he said the reform should be put in place as soon as possible because it will spur competitiveness and investment, making India an important market.

As a policy prescription, Gurria suggested that the government should raise more revenues from property taxes and personal income tax.

“Less than 6% of population pay personal income tax. There should be fewer exemption and more statutory rates,” he said, adding that the benefits of tax reliefs to housing sector are availed mostly by the better offs.

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