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India a bright spot on global map, growth rate expected to be near 7.5%: OECD

Economic Times:  June 02, 2016

New Delhi: India's growth rate is expected to hover near 7.5% this year as well as next even as many emerging market economies continue to lose momentum.

This "solid" growth led by strong investment is expected to continue, helped by reforms to bolster infrastructure spending and robust demand growth, Parisbased Organisation for Economic Cooperation and Development ( OECD ) said in its Global Economic Outlook .

The outlook was released a day after data shared by the statistics office showed that India grew at 7.6% in 2015-16 and economists expect it to grow 7.9% in FY17.

The projections incorporate an increase in public sector wages and pensions and efforts to improve tax compliance.

However, the OECD cautioned that non-performing loans in the banking sector have been rising in several countries, including India where growth has been comparatively robust.

It said they add to "moral hazard" and if maintained for a long period would prevent resource reallocation from non-viable firms, with negative effects on productivity and employment growth.

"If inflation continues to decline, the monetary authorities could cut interest rates in 2017, while further steps should be taken to improve monetary policy transmission," it said.

The organisation recommends Indian authorities to continue to reduce budget deficit via improved tax mobilisation, while shifting more spending towards physical and social infrastructure.

The organisation projects the global economy to grow only 3% in 2016 on the back of weak trade growth, sluggish investment and slower activity. According to its outlook, global recovery is expected to improve only in 2017 to 3.3%.

Noting that the global economy is stuck in a low-growth trap, OECD said a more coordinated use of fiscal, monetary as well as structural policies is needed to move to a higher growth path.

Among major economies, a moderate recovery is expected to continue in the US, which is projected to grow by 1.8% in 2016 and 2.2% in 2017. The Euro area will improve slowly, with growth of 1.6% in 2016 and 1.7% in 2017.

For China, growth is expected to continue to drift lower to 6.5% in 2016 and 6.2% in 2017. In China, investments have moderated over the past year but policy-induced investments in infrastructure and realty have already begun to offset this weakness.

The recently announced stimulus measures in China are projected to help held up demand, the outlook said.

Brazil's economy shrank 5.4% in the first quarter of this year. As per the OECD, The deep recessions in Russia and Brazil will persist, with Brazil expected to contract by 4.3% in 2016 and 1.7% in 2017.

"The longer the global economy remains in this low-growth trap, the harder it will be for governments to meet fundamental promises.

The consequences of policy inaction will be low career prospects for today's youth, who have suffered so much already from the crisis and lower retirement income for future pensioners," said "OECD Chief Economist Catherine L. Mann.

The organization warned that Brexit would lead to economic uncertainty and hinder trade growth, with global effects being even stronger if the British withdrawal from the EU triggers volatility in financial markets


The outlook argues that reliance on monetary policy alone cannot deliver satisfactory growth and inflation.

Given the weak global economy and the backdrop of rising income inequality in many countries, more ambitious structural reforms - in particular targeting services sectors - can boost demand in the short-term and promote long-term improvements in employment, productivity growth and inclusiveness.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.