• Overview of the Economic Survey of India
• Speech of Mr. Angel Gurría, OECD Secretary-General

The Indian economy has been catching up quickly in the past two decades, and weathered the global recession well. Wide-ranging reforms and increased investment have lifted potential growth to almost 9%, the highest in Indian history, helped by improvements in infrastructure. The government should step up efforts to restructure public expenditure; reduce the fiscal deficit; relax some of the constraints facing the financial sector and further promote international integration.

Sustaining higher growth. Administrative burdens have held back the expansion of private firms and these impediments need to be eased. Public-sector governance should be made more transparent and accountable by separating operational and regulatory functions in the provision of public services and by strengthening the anti-corruption agency. Further reductions in trade and FDI barriers are also needed.

Improving fiscal policy and outcomes. The government resumed fiscal consolidation in 2010 and more is planned for 2011. The government needs to ensure subsidies stemming from higher world oil prices do not throw these plans off course. A binding medium-term framework is also needed, presenting the budget on a rolling three-year basis and with rules to limit deficit spending. An independent fiscal monitoring agency might strengthen fiscal discipline. The proposed goods and services tax is an important reform, and its coverage should be as broad as possible to minimise distortions.

Making growth more inclusive. Poverty rates continue to fall but remain high despite strong growth: making growth more inclusive is therefore a top government priority. The introduction of the national rural employment guarantee has helped. However, only seven governments in the world spend less on health than India (in per cent of GDP). Government spending is higher in other areas aimed at lowering poverty, such as subsidisation of kerosene, liquefied petroleum gas and fertilisers. However, a large part of such outlays do not reach the poor. More widespread use of cash transfers conditional on participation in health and education programmes could boost outcomes in these areas.

GDP growth in India, other large emerging economies and the OECD

In per cent

Source: OECD

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Continuing with financial sector reform. India’s financial sector proved resilient in the face of the global crisis. The government is committed to further financial reforms to deepen the financial system and improve access. The entry of new privately-owned banks has heightened competition in the sector and yielded efficiency gains. Granting more banking licences would help in this regard. Reforms are called for to ease wide-ranging and highly prescriptive operating constraints faced by the financial sector for lending, portfolio management and branch location. 

Improving education access and quality. Enrolment and literacy are improving and the 2009 Right to Education Act should help to speed up progress towards universal elementary education. However, high drop-out rates, low student attendance and teacher absence remain severe problems, holding back educational achievements. Teacher effectiveness in the public sector ought to be enhanced through better accountability, incentives and development pathways. In higher education regulation is often ineffective, restricting choice and hampering entry and innovation. Institutions ought to be granted greater autonomy, quality assessment should be strengthened and a higher proportion of funding tied to outcomes.

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