After slew of good economic data, the government has got another reason to cheer, the Paris based Organisation for Economic Cooperation and Development (OECD) in its Global Economic Outlook has said that 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.
The OECD projections incorporated an increase in public sector wages, pensions and efforts to improve tax compliance. But it also 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.
The organisation recommended Indian authorities to continue to reduce budget deficit via improved tax mobilisation, while shifting more spending towards physical and social infrastructure. The OECD said “almost all countries have room to reallocate spending and taxation towards items that offer more support to growth” like investments in infrastucture as well as education.
The organization is increasingly pessimistic about the global economy and expects the combined economy of its member nations, which does not include India or China, to grow 1.8 percent this year instead of its earlier forecast of 2.2 percent and at 2.1 percent instead of 2.3 percent in 2017. Apart from longer-term headwinds like soft demand, weak investment sentiment and sluggish trade, the OECD has also pointed Britain’s potential exit from the European Union. The OECD said countries have relied too much on central banks to stimulate demand and should instead look to strengthen public investment and make their economies more competitive through structural reforms.
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