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OECD gives Narendra Modi’s demonetisation drive a thumbs up, pegs growth at 7%

OECD on Tuesday trimmed its India growth forecast to 7% for 2016-17 mainly due to demonetisation against 7.4% projected earlier.

OECD, India growth forecast, demonetisation, Angel Gurria, Shaktikanta Das, Economic Co-operation, property tax, Cut corporate tax, NPAs
OECD, India growth forecast, demonetisation, Angel Gurria, Shaktikanta Das, Economic Co-operation, property tax, Cut corporate tax, NPAs
OECD on Tuesday trimmed its India growth forecast to 7% for 2016-17 mainly due to demonetisation against 7.4% projected earlier. (Source: Reuters)

OECD on Tuesday trimmed its India growth forecast to 7% for 2016-17 mainly due to demonetisation against 7.4% projected earlier. However, it still viewed India as a star performer, saying that growth will likely touch 7.3% in the next fiscal before rebounding to 7.7% in 2018-19. “India has been a star performer in gloomy times. We do not have many cases of 7% growth… It is a top reformer among all the G-20 countries,” OECD secretary-general Angel Gurria told reporters here after the release of the Organisation for Economic Co-operation and Development’s (OECD) economic survey for India along with economic affairs secretary Shaktikanta Das. The country had grown
7.9% in 2015-16, according to official data.

Demonetisation has long-term benefits
The demonetisation of high-value currency notes has “transitory” and “short-term costs”, in terms of impact on private consumption, but it should have long-term benefits, the OECD said. “The shift towards a less-cash economy and formalisation should, however, improve the financing of the economy and availability of loans (as a result of the shift from cash to bank deposits) and should promote tax compliance,” it said.

Raise more from property tax
Gurria suggested that the government should raise more revenues from property taxes and personal income tax. “Less than 6% of population pays personal income tax. There should be fewer exemption and more statutory rates,” the secretary-general said. The benefits of tax reliefs to the housing sector are mostly cornered by the better offs, he added. “There is also scope to raise more revenue by less distortive property taxes. Raising more revenue from recurrent property taxes would require granting municipalities more power to implement them and set tax rates, and establishing up-to-date property values,” the OECD said.

Cut corporate tax, slap inheritance levy
India should gradually reduce the corporate tax rate to 25% for all companies from roughly 30% now, introduce an inheritance tax and provide certainty in tax rules, the OECD said. The Paris-based think-tank cited a 2015 report by Credit Suisse to suggest that the poorest 30% households in India own just 0.1% of the country’s total wealth, while the top 10% owned 62%. “The wealth tax (1.1% of the central government total tax revenue in 2013-14) was abolished in 2015 and inheritance taxes are virtually absent despite the extreme concentration of wealth in the hands of a few,” the OECD said.

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It added that comprehensive tax reforms, especially the goods and services tax, would lift all boats and raise revenue, helping the government deal with the high poverty rate more effectively. It suggested that living conditions across the states could be improved by focusing on farm production, urban infrastructure, liberalised product and labour market.

Efforts to tackle NPAs must continue
The OECD said the ongoing consolidation process among public banks is welcome and should continue. “However, some banks may need to be closed down or merged with other banks,” it added.

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