OECD agrees with RBI’s growth forecast; suggests key things India should do now

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Published: December 7, 2019 5:40:52 PM

According to the government data, India’s growth slowed to over six-year low of 4.5 per cent in the September quarter because of contraction in the manufacturing output.

India GDP, GDP growth, fiscal, q2 fy20 gdp, q2 gdp growth, q2 resultsOECD projected India’s GDP to grow at 5.8 per cent for FY20 only to gradually recover to 6.2 per cent in 2020 and 6.4 per cent in 2021.

The Organisation for Economic Co-operation and Development (OECD), which recently reported India’s GDP to grow at 5.8 per cent for FY20 only to gradually recover to 6.2 per cent in 2020 and 6.4 per cent in 2021 in its economic survey of India, said it is in line with the Reserve Bank of India’s growth assessment. “We understand the central bank has cut GDP growth forecast partly acknowledging the much lower than expected investment growth in the third quarter. So we would be very much in line with the assessment that growth is slowing down,” OECD chief economist Laurence Boone told ET Now. RBI on Thursday had cut the GDP forecast for FY20 to 5 per cent from 6.1 per cent estimated earlier amid weak demand.

According to the government data, India’s growth slowed to over six-year low of 4.5 per cent in the September quarter because of contraction in the manufacturing output. However, this might not be the end as the core sector growth shrank by 5.8 per cent in October, consecutively for the second month. “The issue is not so much monetary policy which is accommodative but for which interest rates were not cut. The issue is how lower rates can translate into higher investment. And for this, what the survey highlights, is that we need to focus on the financial sector balance sheet and make it cleaner,” Boone said suggesting to “recapitalise the banks, pay attention to the non-banking financial sector, and make sure all the NPAs are being dealt with.”

Also read: No need to cast aspersions on every government data, says FM Nirmala Sitharaman

Last month Moody’s Investors Service Moody’s had also cut the growth forecast to 5.6 per cent for the current year. “We expect economic activity to pick up in 2020 and 2021 to 6.6% and 6.7%, respectively, but the pace to remain lower than in the recent past,” Moody’s Global Macro Outlook report said. To attract more investment, Boone asked for “good condition for credit to be cheaper.” Also, there is a need “to look at the barriers to expand trade. For this India can do two things — one is harmonise and make more stable tariff measures, and the second is to focus on liberalising further services trade because that’s a key component for not only of ICT trade and business services but also of manufacturing goods trade.” The economist added that it is also important to “look at the domestic bottleneck and that is all the barriers for firms when they start growing employment. All this needs to be simplified for firms to be able to grow and for them to invest.”

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