It pitches for further reductions in trade and foreign direct investment barriers

Cautioning on the inflationary front, the Organisation for Economic Co-operation and Development (OECD) on Tuesday pointed to India's potential in the medium-term to achieve double-digit growth with the right policies in place and a higher savings rate on account of demographic developments.

In its ‘Economic Survey on India' released here, the Paris-based ‘rich club' think tank of 34-member countries said: “Inclusive growth of 10 per cent a year is feasible given that demographic developments are set to push up saving, but will only be achieved if the administrative and regulatory barriers facing companies are reduced.''

Even as the country's GDP (gross domestic product) expansion is officially projected at over 8 per cent during the current fiscal, Prime Minister's Economic Advisory Council (PMEAC) Chairman C. Rangarajan, in his address, viewed that although there is potential to grow by nine per cent annually, the growth during 2011-12 was likely to be about 8.5 per cent.

In its survey, the OECD noted that the sustainability of India's growth potential would depend on larger capital inflows coupled with higher domestic savings. For this to happen, it pitched for further reductions in trade and foreign direct investment (FDI) barriers while noting that economic growth was poised to remain strong in the near term owing to private consumption and investment.

“However, sustaining high growth hinges on sound monetary and fiscal policies,” it said.

“Longer term capital inflows can be increased by eliminating remaining controls over direct investment and allowing foreigners to purchase government bonds,” the OECD survey said.

According to OECD's Secretary General Angel Gurria, India has been a ‘stand out performer' in the global economy and the country has benefited from reforms. Pointing to the need for disinvestment as part of financial sector reforms, the survey noted that a small number of “state-owned banks will continue to need capital injections, which could be best done via sales of shares.”

As for reining in inflation, the OECD stressed the need for ‘further incremental tightening' as the Indian economy is back on a high-growth trajectory.

“Notwithstanding occasional spells of credit market pressure, further incremental monetary policy tightening is advisable to ensure inflation moderates and to prevent inflationary expectations becoming unanchored,” the survey said.

The OECD noted that while surging oil and food prices have led to ‘stubbornly high inflation', further fiscal consolidation and monetary policy tightening would promote balanced growth. “This, along with a stabilisation in international commodity prices should lead to a gradual decline in inflation over the course of 2011,” it said.

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