London: With ‘relatively robust” growth prospects, the Indian economy is expected to expand by 7.2 percent this fiscal but difficulty in passing key structural reforms and large non-performing loans are holding it back, says Paris-based think tank OECD.
However, the Organisation for Economic Cooperation and Development (OECD) on Monday cut the global growth forecast for this year to 2.9 percent citing a “further sharp downturn in emerging market economies and world trade”.
The latest growth estimate for India is same as the forecast made in September by the think tank.
In the current financial year (ending March 2016), India is estimated to grow 7.2 percent, followed by 7.3 percent in 2016-17 and 7.4 percent in 2017-18 period, as per OECD.
“Brazil and Russia have experienced recessions and will not return to positive growth in annual terms until 2017.
“By contrast, growth prospects in India remain relatively robust, with GDP growth expected to remain over 7 percent in the coming years, provided further progress is made in implementing structural reforms,” the think tank said in a statement on Monday.
Economic growth of India is projected to remain robust, at around 7.25 percent over the projection period, it added.
In its latest Economic Outlook report, OECD said that in India public investment has picked up with faster clearance of key projects while better infrastructure and greater ease of doing business are promoting private investments. More generous benefits and wages for public employees are supporting private consumption.
“Even so, large non-performing loans, high leverage ratios for some companies and difficulty in passing key structural reforms are holding the economy back. The current account deficit is widening as machinery imports increase, but is largely financed by rising foreign direct investment inflows,” the report said.
India’s economic growth slowed to 7 percent in the three months ended June compared to 7.5 percent expansion recorded in the January-March quarter, as per official estimates.
While cutting the world economic growth estimate to 2.9 percent for this year, OECD has projected a gradual strengthening of global growth in 2016 and 2017 to 3.3 percent and 3.6 percent, respectively.
“But a clear pick-up in activity requires a smooth rebalancing of activity in China and more robust investment in advanced economies,” it added.
As per OECD’s September estimates, global growth was to be 3 percent this year and 3.6 percent in 2016.
The think tank said China’s growth is expected to slow to 6.8 percent this year and continue to decline gradually reaching 6.2 percent by 2017 as activity rebalances towards consumption and services.
About India, OECD said that fiscal policy is assumed to
Public investment in the energy, transport, sanitation, housing and social protection sectors is critical to raising living standards for all and can be financed through tax reform and reductions in subsidies, it added.
“The remaining slack in the economy and the disinflation process will provide room for some monetary easing by the end of the projection period.
“Creating more and better jobs will require further improving the ease of doing business, modernising labour regulations, implementing the goods and services tax and making land transactions easier,” the report noted.
Further, OECD said that rapid economic growth, better household access to energy and more manufacturing activity would raise energy consumption, which is now highly subsidised and carbon intensive.
“Despite recent hikes in coal, petrol and diesel duties, average effective tax rates on CO2 emissions remain relatively low. Phasing out subsidies for kerosene and gas and raising electricity prices would help contain emissions. Such measures risk hurting the poor, however, and so will need to be accompanied by compensating measures,” it added.
OECD Secretary General Angel Gurria said the slowdown in global trade and the continuing weakness in investment are deeply concerning.
In the US, output remains on a solid growth trajectory, propelled by household demand, with GDP expansion expected to be 2.5 percent next year and 2.4 percent in 2017, the think tank said.
“The recovery in the euro area is set to strengthen, helped by accommodative monetary policy, lower oil prices and an easing of the pace of budget tightening. Euro area activity is expected to grow by 1.8 percent in 2016 and 1.9 percent in 2017,” the report noted.