October 2007

India surging ahead

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Introduction

On 9 October, 2007 Angel Gurria, Secretary-General, OECD, released the first Economic Surveys, India Report, in the presence of D Subba Rao, Finance Secretary, Ministry of Finance, Government of India, Dr. Isher Judge Ahluwalia, Chairperson, Indian Council for Research on International Economic Relations (ICRIER), Rajiv Kumar, Director and Chief Executive, ICRIER and Salu Kapila. The Report was released in Hotel Imperial, New Delhi (India). The Academic Foundation published the Indian Economic Survey of the OECD for the South Asian market. 

Welcome session

In his opening presentation, Angel Gurria informed that the OECD Economic Survey provides an overview of economic policies in India and proposes a number of reforms. The Report is the result of extensive discussions between the staff of the OECD and a wide range of experts in India both in the central and state governments, and in the private sector. Globalisation and economic reforms also helped in the rise of IT and ITES (IT-enabled services). Due to all these factors, India recently experienced growth rate of nearly 9.0 percent. While talking on reforms, Angel Gurria focused upon four major areas, namely: improving business environment; infrastructure development; public finances and labour market reforms. He asked for labour market reforms in India, in the backdrop of restrictive employment regulation in the formal sector, and the growing unorganised sector where much of the employment is created. Dr. Isher Judge Ahluwalia while speaking about the OECD Economic Survey, said that the Report lacked focus on India's ailing agricultural sector. D Subba Rao said that the OECD Report is very comprehensive, and despite its limitations, it has provided a road map of what is needed for India's future economic and social development.

Report OECD

India's annual economic growth could reach a sustainable 10 percent and be spread more evenly across the country if it pursues ambitious and wide-ranging reforms, says the new OECD report. In its first Economic Survey of India, the OECD says market-based reforms since the 1980s have helped reduce poverty and average incomes are expected to double within the next decade. The new Competition Commission needs to start work as quickly as possible now that it has full legal backing. A modern bankruptcy law is also needed to simplify the restructuring of insolvent firms. 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 report says the government should continue its programme of increased discipline in public spending. This will make room for higher levels of private investment. Spending on subsidies should be better targeted to help the poor. The survey also recommends reducing tax exemptions to allow more money to be transferred to fund public services in urban areas. “India's infrastructure is seriously overstretched,” the survey warns. The country's “high rate of economic growth is at risk if infrastructure development does not increase and keep pace with demand.” Electricity shortages are one such brake on growth. To boost investment in this area consumers should pay for all of their electricity, the report says. Business should no longer be forced to subsidise consumers by paying overly high electricity prices. Banks should be gradually moved out of the public sector while the government should stop directing bank lending. These moves would improve allocation of capital and boost growth. More foreign competition is needed in financial services. The report calls for the removal of the ban on foreign direct investment in retail shops. This would help improve productivity and supply chain management, reduce the high rates of waste of farm products and lower prices for the consumer. Labour market laws need to be reformed so that more people can benefit from economic growth. Existing laws are pushing jobs into low productivity small-scale firms. Reform would help ensure that India benefits fully from its abundant labour, the report says. To ensure higher incomes, India will need a better educated population. The OECD survey proposes ways of ensuring that all children complete eight years of schooling through such schemes as improving incentives for teachers and providing the poor with cash grants dependent on their children continuing at school.  

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