Creation of quality jobs, underemployment, income inequality are key challenges for India: OECD

Shishir Sinha New Delhi | Updated on December 05, 2019

Representative image   -  The Hindu

In its Economic Survey of India, the OECD expresses optimism about growth, but cautions that there are risks to the outlook

The Paris-based inter-governmental economic organisation, the Organisation for Economic Co-operation and Development (OECD), has said that creation of quality jobs, underemployment and income inequality remain challenges in India.

These are among the key findings of OECD’s Economic Survey of India, 2019, which was released on Thursday. While it expressed optimism about growth, which was projected to recover, there are risks to the outlook.

OECD is an international organisation that works to build better policies for better lives. Its goal is to shape policies that foster prosperity, equality, opportunity and well-being for all.

Women’s employment low

It said that the employment rate had declined and was low, especially for women. When women have jobs, they are often paid less. Labour laws were complex; some were particularly stringent for industrial firms, and most of them kicked in when firms grew, deterring formal job creation. In practice, most workers were not covered by the core labour laws and social security. Recent efforts to streamline labour regulations into four codes was welcome. “To boost job creation and, thus, improve equity, efforts to modernise labour regulations should continue,” the survey advised.

Talking about economic growth, the organisation projects GDP (Gross Domestic Products) in the current fiscal (2019-20) at 5.8 per cent, lower than 6.8 per cent in 2018-19. However, it was estimated to grow to 6.2 per cent during 2020-21 and further to 6.4 per cent during 2021-22. As the GDP growth estimate during the second three months (July-September) slipped to a six-year low of 4.5 per cent, there were concerns on the overall growth number for the entire fiscal. Some agencies have projected the growth for the entire fiscal to be as low as 5.1 per cent.

However, OECD seems to be slightly optimistic. It said that private investment would bounce back as capacity utilisation rises. The recent loosening in monetary policy, combined with fiscal rectitude, will lower the cost of borrowing for the corporate sector. The ongoing resolution of distressed assets of non-financial corporates under the Insolvency and Bankruptcy Code is expected to unlock resources for new investment projects. Reforms to improve the ease of doing business – including recent measures to liberalise FDI and efforts to improve judicial services and contract enforcement – will also help. Exports will suffer only marginally from the withdrawal of US preferential duties for low-income countries, as the products concerned account for a small share of India’s export basket. “Rural consumption will revive, as the new income support scheme for farmers is fully implemented,” the survey said.

Still, OECD has cautioned against some risks to the outlook. Although international oil prices have come down, they remain volatile and pose risks for inflation, the current account and public finances – India imports the bulk of its oil. Higher inflation would reduce households’ purchasing power. A large deterioration in the current account and fiscal deficits could trigger an adverse confidence effect, which would manifest itself in large capital outflows and pressures on the rupee, with additional pressures on inflation. Higher oil prices would also squeeze profit margins and weigh on investment. Trade tensions are affecting business sentiment, although India has specialised more in services than in merchandise trade and, so far, India has seized some merchandise markets lost by China after the hike in US import duties. “The ruling party’s large majority in the recent parliamentary elections makes it easier to pass and implement reforms, as illustrated through the recent liberalisation of FDI, representing a positive risk to the outlook,” the survey said.


OECD’s Economic Survey of India

· Economic growth has been strong, but social and governance challenges remain

· Growth is projected to recover after a temporary slowdown

· Income has increased fast in recent years but private investment has lagged behind and, recently, activity has slowed

· Inflation has declined, but lending rates have not adjusted fully

· The public debt-to-GDP ratio remains relatively high

· Ambitious reforms have been passed; implementing them fully would boost incomes and wellbeing

· India’s participation in the global economy is high and rising, with outstanding performances in some services.

· Labour-intensive exports are lagging behind

· Addressing domestic structural bottlenecks is key to supporting India’s competitiveness

· Air pollution is high and will increase in the absence of bold action.

Published on December 05, 2019

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