OECD cuts India's growth forcast to 7%

NEW DELHI: Paris-based think tank OECD has cut India's growth forecast for this fiscal year to 7% from 7.4% earlier because of demonetisation, but said the pace will accelerate to 7.3% next fiscal and higher in FY19.

In its Economic Survey of India released on Tuesday, OECD said comprehensive tax reforms, especially the goods and services tax, "would lift all boats" and raise revenue to fight poverty , but said the country must continue the reforms momentum to boost investments and create quality jobs.

“India has been a star performer in gloomy times. We do not have many cases of 7 %growth... It is a top reformer among all the G-20 countries,” OECD secretary general Angel Gurria told reporters in New Delhi. “Reforms are historic and are bearing fruit, growth is strong and other macroeconomic indicators are improving,” he said.

“Maintaining the reform momentum will be critical to boosting investment and creating the quality jobs needed to ensure strong and inclusive growth for future generations, with all segments of society benefitting from it,” Gurria said.

According to the OECD survey, investment is held back by the relatively high corporate income tax rates, a slow land acquisition process, weak corporate balancesheets, high non-performing loans that weigh on bank lending, and infrastructure bottlenecks. It called for a comprehensive reform of property, personal income and corporate taxes to complement the GST reform.

India is already in the process of implementing a gradual reduction in corporate income tax to 25% from 30%, a suggestion made by OECD that also called for “certainty regarding tax rules and their implementation".

OECD suggested eliminating tax expenditures that benefit the rich most and freezing of the income thresholds for levying taxes. It also proposed inheritance tax with a high exemption threshold and raising the scope for property tax in view of large concentration of wealth.

“Raising more revenue from recurrent property taxes would require granting municipalities more power to implement them and set tax rates, and establishing up-to-date property values,” it said.