Home / Politics / Policy /  India poised for gradual economic recovery: OECD

New Delhi: India’s economy is poised for a gradual recovery in 2013, driven by large investment projects and foreign direct investment, after slumping to its slowest pace of growth in a decade in the previous year, the Organisation for Economic Cooperation and Development (OECD) said in its economic outlook on Wednesday.

OECD projected India’s gross domestic product (GDP), calculated at market prices, to grow at 5.7% in 2013 and 6.6% in 2014, from 3.7% in 2012. These figures are not comparable with Indian government projections as the government measures GDP at factor cost.

“Among major emerging market economies, a moderate cyclical upturn is getting underway in China, while a more hesitant pick-up in growth is seen to take place in India," the Paris-based organization said.

The Indian government has estimated GDP growth to pick up to a pace of 6.1-6.7% in the current fiscal year after slumping to 5% in the year ended 31 March, the slowest in 10 years, as high borrowing costs and inflation deterred corporate investment and undermined consumer confidence at home while demand for exports in key Western markets shrank.

OECD said the global economy was moving forward, but divergence between countries and regions reflected the uneven progress made toward recovery from the economic crisis. Global real GDP is projected to grow by 3.1% this year and by 4% in 2014.

The US economy is projected to rise by 1.9% this year and by a further 2.8% in 2014. GDP in the euro area is expected to decline by 0.6% this year and then rebound by 1.1% in 2014, while in Japan GDP is expected to grow by 1.6% in 2013 and 1.4% in 2014.

“The global economy is strengthening gradually, but the upturn remains weak and uneven," said OECD secretary general Angel Gurría in a statement. “Supportive monetary policies, improving financial market conditions and a gradual restoration of confidence are at the root of the recovery. Also, the fiscal adjustment of the last few years is beginning to pay off. Several countries are close to stabilizing their government debt-to-GDP ratios and ensuring a gradual decline in indebtedness over the longer term."

The organization, a grouping of developed economies, said the Reserve Bank of India (RBI) had the scope to cut policy rates further due to the expected drag from fiscal consolidation and as non-food, non-energy price inflation softens, even as headline inflation remains “stubbornly high".

OECD said the fiscal consolidation road map presented in October 2012 should help lower the general government deficit from 7.5% of GDP in 2012 to 6.5% in 2014.

“Even so, policy implementation remains a challenge, fiscal consolidation efforts should focus on raising more tax revenue in a less distortive way (such as moving swiftly to the proposed goods and services tax (GST) and reducing both tax expenditures and marginal rates, increasing the effectiveness of infrastructure investment and better targeting subsidies so as to boost inclusive growth," OECD said.

OECD said China will likely overtake the US as the world’s largest economy in the next few years.

In terms of purchasing power parity, it said India probably recently surpassed Japan as the third largest economy although Japan’s GDP is three times that of India’s. Until around 2020, China is set to have the highest growth rate among major economies, but could be then surpassed by India. Between now and 2060, GDP per capita is seen to increase more than eightfold in India and sixfold in Indonesia and China.

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