OECD expects India’s economy to grow close to 7.5% in 2019, 2020


India’s economy will grow close to 7.5% in 2019 and 2020 as higher oil prices and rupee depreciation put pressure on demand and inflation, the Organization for Economic Cooperation and Development (OECD) has said.

India’s gross domestic product (GDP) grew 6.7% in 2017-18. OECD projects GDP at market prices to grow 7.3% in 2019 and 7.4% in 2020 from 7.5% in 2018.

“Economic growth will slow somewhat but remain robust, at close to 7.5% in 2019 and 2020,” the Paris based organisation said for India in its 2018 Economic Outlook.

Tighter financial conditions, higher oil prices, adverse terms of trade, lower growth in partner countries, and rising political uncertainties in India and abroad will tend to reduce growth, it said.

The Reserve Bank of India expects FY19 growth at 7.4%. Global credit rating agency Moody’s Investors Service has projected India’s economic growth to moderate to 7.3% in 2019 and 2020 as higher oil prices combined with rupee depreciation and monetary tightening dampen domestic demand.

It said that though higher oil prices and rupee depreciation are putting pressure on demand, inflation, the current account and public finances, structural reforms will aid business investment and exports.

These reforms include the new Insolvency and Bankruptcy Code, smoother implementation of the Goods and Services Tax (GST), better roads and electricity and bank recapitalisation.

Pressures on inflation are also rising from recent increases in wages and housing allowances for public employees. Core inflation and inflation expectations are edging up, it cautioned.

However, the organisation said that monetary policy will need to be tightened as inflation expectations are trending up and there are several upside risks to inflation.

OECD lauded the Reserve Bank’s credibility in targeting inflation and said: “the projected marginal increases in policy rates will help anchor inflation”.

Containing the relatively high public debt-to-GDP ratio would require controlling contingent liabilities, such as those stemming from public enterprises and banks, it said.

The organisation also sought further subsidy reform to help make social spending more effective. and improvement in public banks’ governance.

On the trade front, OECD noted that the hike in US tariffs on Chinese imports could benefit India’s exports particularly in the textile sector.

OECD has projected global GDP growth to slow from 3.7% in 2018 to 3.5% in 2019-2020.


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