30.5.13

OECD on the Indian Economy


The Indian economy has probably recently surpassed Japan to be the third largest economy globally, the Organisation for Economic Cooperation and Development (OECD) said, bringing some relief for the country’s policy makers battling a sharp economic slowdown.
But, the OECD revised downwards its forecast for growth for India in 2013 to 5.3% from the previous 5.9% and said the recovery would be aided by the efforts being made to speed up approval for large projects as well as partial deregulation of foreign direct investment.
“China will likely pass the US as the world’s largest economy in the next few years and India has probably recently surpassed Japan to be the third largest. By the early 2030, combined GDP of BRIICS (Brazil, Russia, India, Indonesia, China and South Africa) should roughly equal that of the OECD (based on current membership), compared with just over half of the OECD at present,” the Paris-based think tank said in its economic outlook. This is based on purchasing power parity terms.


In nominal GDP terms, India ranks as the third largest economy in Asia behind China and Japan and globally it ranks 10th. The Indian economy, which notched up scorching growth until a few years ago has slowed due to the impact of the global economic slowdown, high interest rates, delay in implementation of policies and structural bottlenecks. Growth is estimated to have slowed to a decade low of 5% in 2012-13, while policymakers expect it to revive to be closer to 6% in 2013-14.
The OECD report also said between now and 2060, GDP per capita is seen to increase more than eight-fold in India and six fold in Indonesia and China, whereas GDP in the highest income OECD countries may only roughly double over this period. “In terms of geographical distribution, there will be a big shift in the share of world GDP accounted for by Asia at the expense of both North America and Europe...,” the report said.

Referring to India, the OECD report said inflation is expected to decline further as the effects of poor weather on food prices and hikes in administered prices fade. It said the fiscal tightening and the new fiscal consolidation roadmap are welcome and monetary policy should be eased further. The OECD also called for wide-ranging reforms to remove the structural bottlenecks and raise standard of living.
“Energy subsidies remain high and should be cut. The tax system should also be reformed to raise more revenue in a less distortive way so as to boost private investment and competitiveness,” the report said.
“In particular, the long awaited reform of indirect taxes should be implemented swiftly. However, structural bottlenecks continue to constrain both investment and growth potential and addressing them is the key to boosting growth and raising living standards,” it said. 

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