The Hindu Business Line : ‘Economic growth could reach a sustainable 10%’

First India report: (From left) Mr Angel Gurria, Secretary General, OECD, Ms Isher J. Ahluwalia, Chairperson, ICRIER, and Mr D. Subba Rao (right), Finance Secretary, during the launch of the first OECD Economic Survey of the Indian Economy at a function in New Delhi on Tuesday. —

Our Bureau

New Delhi, Oct. 9 India’s annual economic growth could reach a sustainable 10 per cent and be spread more evenly across the country if the Government pursues ambitious and wide-ranging reforms, the Organisation for Economic Cooperation and Development (OECD) has said in a survey.

“India is now the world’s third largest economy behind the US and China, in terms of real prices and purchasing power. So, in this background, the Government’s target of reaching the GDP growth of 10 per cent is achievable if reforms continue,” the OECD said in its first economic survey on India released here on Tuesday.

The survey has identified labour reforms, infrastructure, need for fully operationalising Competition Commission and a modern bankruptcy law, as the major challenges for the Government to sustain the growth rate.

Subsidy spending

It said that the Government should continue its programme of increased discipline in public spending and added that the spending on subsidies should be better targeted to help the poor.

“Privatisation of more publicly-owned firms should resume to help improve productivity and profitability. In the meantime, public companies should be controlled by a Government investment agency rather than by a sponsoring Ministry, in order to separate ownership and policy making,” the survey noted.

It has also recommended reducing tax exemptions to allow more money to be transferred to fund public services in urban areas.

The OECD survey has suggested the removal of ban on foreign direct investment in retail shops and said that it would reduce the high rate of waste of farm products and lower prices for the consumers.

Banking reforms

On the banking sector reforms, the report has recommended that the Government should gradually move out of the public sector banks and stop the practice of mandatory lending to specified sectors. “These moves would improve allocation of capital and boost growth. More foreign competition is also needed in financial services,” the survey said.

Taxation policies, the report suggested, are needed to be reformed to create a truly national market and improve incentives and release resources for reducing bottlenecks in infrastructure, which are a key constraint on growth.

Making a case for labour reforms, the OECD survey said, softening of employment protection clauses should be balanced by an increase in extent of accrual-based severance payment. It also suggested that the Government should consider consolidation of 46 central and around 200 state labour laws, which are hampering employment generation in the organised sector.

“The efficiency of public spending has to be improved. The survey suggests that the Government spends four rupees to deliver one rupee of food and fuel subsidies to the poorest. At the same time, existing tax breaks need to be reviewed in order to increase revenues or perhaps to lower direct taxes,” Mr Angel Gurria, Secretary-General of OECD said after releasing the survey.

“Furthermore, the efficiency of spending in the area of public education has to upgraded to respond to the increasing demands for skilled human capital,” he added.