The Organisation for Economic Cooperation and Development (OECD) on Tuesday cut its growth projection for India in 2016-17 to 7% from the 7.4% it had projected last year.
The OECD, in its Economic Survey of India 2017 report, forecast a growth rate of 7.3% for 2017-18 and 7.7% for 2018-19.
“We all recognise that India has been a star performer in gloomy times for the world economy,” Angel Gurría, Secretary-General, OECD said during the release of the report. “We launch about 25 OECD Economic Surveys every year, and it is not often that I get to announce growth figures of 7%. This is more than double the current global growth figure, and four times the OECD average. At the same time, inflation, the current account deficit, and the central government deficit have all been brought down in the past few years.”
Mr Gurria, however, said that this was not the time to “rest on one’s laurels” and that the reform momentum must continue to make growth more inclusive.
“Progress is needed on many fronts, including making labour laws more flexible, bank recapitalisation, pricing of water and energy, easing stringent product market regulations and continuing to improve access to education, to mention just a few,” he said.
Also speaking at the launch of the report, Economic Affairs Secretary Shaktikanta Das reiterated that one of the most major tax reforms in India, the Goods and Services Tax, would roll out from July 1.
The report raised some issues that could alter the performance of the Indian economy, including the bank NPA issue and geopolitical risks.
“Highly-leveraged companies and public banks with large non-performing loans are exposed to major shocks emanating from domestic and foreign financial markets,” the report said. “Investment would suffer and recapitalisation needs would increase, with a negative impact on economic growth and the fiscal deficit.”
However, the report added that while banks’ stressed assets have increased in recent years, reaching 12.3% of GDP in September 2016, “the increase in NPLs (non-performing loans) largely reflects greater recognition of them, rather than a further deterioration of underlying fundamentals”.
Within tax reform, the survey report highlighted some key measures that were needed to increase revenue and align the system to international standards.
“High corporate income tax rates and a narrow base distort the allocation of resources, discourage foreign investment and make tax evasion and avoidance more attractive,” it said. “Tax disputes are frequent and long to resolve. Staff numbers and training levels are low in the tax administration.”
In order to rectify this, the OECD recommended implementing the reduction of the corporate tax rate from 30% to 25%, provide certainty regarding tax rules and their implementation, and increase the number and training of staff employed in the tax administration.
