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India’s economic growth will regain strength, approach 7.5% by 2020: OECD
May-22-2019

Expressing optimism over India’s growth, the Organisation for Economic Co-operation and Development (OECD) in its latest Economic Outlook has said that the country’s economic growth will regain strength and approach 7.5% by 2020. The new income scheme for small farmers will support rural consumption. Investment growth will accelerate as capacity utilisation rises, interest rates decline, and geopolitical tensions and political uncertainty are assumed to wane. Lower oil prices and the recent appreciation of the rupee will reduce pressures on inflation and the current account.

The intergovernmental agency has said reducing the high public debt-to-GDP ratio would require improving the collection of the Goods and Services Tax (GST) and broadening the personal income tax base. Ensuring a swift resolution of bankruptcy processes would help contain non-performing loans and boost productivity by promoting the reallocation of resources to more productive firms and sectors. It added that India has the fastest growth among G20 economies. Besides, fiscal policy is supporting consumption demand.

As per the report, with inflation well below the mid-band point target, inflation expectations adjusting down, and existing slack, there is room for a cut in policy rates. With banks’ health gradually improving, as evidenced by the recent decline in stressed assets, lending rates should adjust more swiftly, and support the revival of business investment. To avoid a new build-up of non-performing loans, public banks’ governance should be improved to ensure sound portfolio decisions.

On the global front, the OECD has cut its forecast for the world economy, urging governments to resolve their trade disputes as the latest flare-up in the China-US trade war threatens to crimp global growth. It said as it pared back its forecast for global growth to 3.2% this year from 3.3% earlier. It notched up its forecast for US growth this year by 0.2 percentage point to 2.8%, but predicted a slowdown to 2.3% next year. Chinese growth is projected to slow to 6.2% this year and 6.0% next year. The outlook for the euro area growth unchanged at 1.2% this year.

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