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More reforms needed to boost jobs, incomes: OECD

Restoring growth to the higher levels needed to provide ample jobs and ease inequality will require accelerating the pace of structural reforms to revive investment and exports.

ET Bureau|
Updated: Dec 06, 2019, 06.44 AM IST
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NEW DELHI: India is set for a modest recovery after a loss of momentum as reforms to simplify taxation, lighten business regulations and upgrade infrastructure start to bear fruit, the Organization for Economic Cooperation and Development (OECD) said on Thursday, even as it pushed for reforms to create jobs and improve public welfare.

Growth in Asia's third largest economy will slowdown to 5.8% in 2019 but would recover to 6.2% in 2020 and 6.4% in 2021, the OECD said in its ‘Economic Survey of India’ report. The Reserve Bank of India (RBI) on Thursday kept its key lending rate unchanged and sharply lowered its gross domestic product (GDP) growth forecast to 5% from 6.1%, while maintaining an "accommodative" policy stance.

India's economy grew 6.8% in FY19. But economic expansion slowed to 4.5% in July-September, the weakest pace in more than six years, from 5% in the June quarter.

“However, this slower pace of growth underlines the need to fully implement existing reforms and continue lowering barriers to trade to generate the investment and jobs India needs to raise living standards across the country," said OECD chief economist Laurence Boone.

The OECD report noted that India has greatly expanded its participation in global trade in recent years but private investment remains relatively weak, employment rate has declined amid a shortage of quality jobs, rural incomes are stagnating, and per capita income varies considerably across states.

“Further reforms to modernise the economy are now needed to drive the creation of high-quality jobs, as well as measures to improve public services and welfare,” it said.

6th dec graph 2

Speaking at the launch of the report, chief economic adviser to the government Krishnamurthy Subramanian said global economic growth is significantly low, which is having an impact on India as well.

“The global economy today is at one of its significantly low points... the current lull is particularly exasperated by a consistent attempt to downgrade the power of multilateralism,” he said.

As per the report, restoring growth to the higher levels needed to provide ample jobs and ease inequality will require accelerating the pace of structural reforms to revive investment and exports.

Macro Policies

Monetary policy should remain accommodative as long as inflation is set to remain comfortably close to the target, the survey said. It called for India to “improve transparency” in off-budget transactions and its contingent liabilities as the government deficit-to-GDP ratio has declined but public spending programmes are being financed off the budget.

“Establishing a fiscal council would help monitor progress toward fiscal targets and bring transparency,” the Paris-based organisation said. This comes after the government included extra budgetary resources, comprising fully-serviced government bonds, in the budget estimates for 2019-20.

India’s public debt-to-GDP ratio remains relatively high, the survey said. Although the central government deficit and state deficits have declined, off-budget financing has increased, it said.

Services Trade, Labour Laws
Reducing restrictions to services trade imposed by trading partners and by India on imports would further boost trade in services, also giving a lift to manufacturing and the general economy.

The OECD estimates suggest India would be the biggest beneficiary of a multilateral cut in services trade restrictions. Even without a multilateral agreement, moving alone to overhaul regulations would have a positive impact.

Doing more to simplify complex labour laws – many of which discourage hiring by becoming binding as firms grow above stated thresholds – would help raise the share of quality jobs demanded by a fastgrowing and well-educated youth population in a country where the vast majority of employment is informal.

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