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Indian economy to gain momentum, can grow at 4.9% in 2014: OECD

07 May 2014 Evaluate

The Organisation for Economic Cooperation and Development (OECD) in its latest report has said that Indian economic growth will gain momentum with a decline in political uncertainty after the general elections and increasing investments. The OECD’s report added that India's economic growth is likely to inch up 4.9 percent in 2014 and further gain momentum to grow at 5.9 percent in 2015. However, rising bad loans and fiscal consolidation would weigh on economic recovery.

The Paris based think tank further highlighted that rise in rural incomes and the contracting inflation would boost domestic consumption, while, rupee's depreciation and firming external demand would augment Indian exports’ growth. The OECD’s report further stated that implementing the proposed inflation targeting framework will check price rise and improve business sentiment and consumer confidence in the country. However, it added that fiscal consolidation and supply bottlenecks coupled with still high non-performing loans and corporate leverage may adversely impact the recovery. NPAs of state-owned banks rose 28.5 percent to Rs 2.36 lakh crore in September 2013 from Rs 1.83 lakh crore in March last year. Owing to their impaired portfolios, the banks are now cautious to extend credit which is impacting the growth of corporate sector.

On fiscal deficit front, the OECD highlighted that though the fiscal deficit has narrowed, there is a need to take more measures like implementing pending tax reforms and changing the spending mix away from energy subsidies towards better targeted social and infrastructure investment. Fiscal deficit is expected to be contained at 4.6 percent of GDP in FY 14, as compared to 4.89 percent in the FY13. The report further added that reforming labour regulations and improving the education and training systems would also promote growth and help create better quality jobs.

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