GDP could recover to 5.7% in 2015, says OECD

NEW DELHI: India’s economy is expected to gather momentum as investments pick up owing to the combined impact of push by the Cabinet Committee on Investment (CCI) and end of political uncertainty after the ongoing general elections, the Organisation for Economic Cooperation and Development (OECD) said on Tuesday.

Growth could recover to 5.7% in 2014-15 compared to 5.4% expected in the previous fiscal, the Paris-based think tank said in a report, offering estimates at market price that are not strictly comparable with India’s official national income statistics computed on factor cost method.

India’s Central Statistics Office has pegged growth during 2013-14 at 4.9%, signalling a second successive year of sub-5% growth that was last seen in mid-1980s.

“Investment should recover as projects cleared by the Cabinet Committee on Investment are implemented and political uncertainty declines after May 2014 general elections,” the OECD report said while warning that non-performing loans could undermine the recovery.

“On the negative side, failure to halt the rise in non-performing loans could derail the pickup in investment,” the report said. Growth could be “faster than projected and more inclusive” if ambitious reforms are implemented, it said, listing labour market reforms, tax reforms and reduction in energy subsidies as key action points.

The report said fiscal consolidation would help improve business environment while rising incomes and lower inflation should boost private consumption, but added that India’s exports were facing stiff competition. “However, export data for the first months of 2014 suggest that competitiveness remains an issue of concern,” it said. Fiscal consolidation road map is on track, it noted, but urged reforms to simplify direct and indirect taxes and the need to make them more growth friendly.

The OECD welcomed the proposed move aimed at inflation targeting, a measure it feels could anchor inflation expectation. “The proposed inflation targeting framework will help anchor price expectations and improve business sentiment and consumer confidence,” it said. The report noted an improvement in India’s external situation but flagged “volatile capital flows and high corporate leverage with unhedged external debt in some companies” as a concern.