India: Extensive reforms needed
The economy grew rapidly in the fiscal year (FY) 2006, expanding by 9.4%. Strong growth was fuelled by a good performance of the agricultural sector and continued strength of industrial output. In the first half of FY 2007, investment remained buoyant, leading to improvements in the supply potential of the economy. With higher interest and exchange rates, output growth is projected to gradually slow to 8.4% by 2009. The current account deficit is likely to widen from 1.1% of GDP in FY 2006 to 2% by 2009. Inflation, as measured by the GDP deflator, is expected to ease back somewhat over the projection horizon as increases in food prices moderate.
Achieving strong and sustainable economic growth will require a significant package of economic reforms. Fiscal deficits will need to be further reduced to make room for private corporate investment. Tariffs should be lowered further and measures taken to reduce the administrative burden on enterprises. At the same time, restrictive labour market policies should be eased so that companies are encouraged to employ staff on a long-term basis, thereby helping to reduce poverty. Improvements in public service delivery are also needed to raise the quality of education and infrastructure.
No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
• Visit www.oecd.org/india
• All OECD Observer articles on India