India - Economic forecast summary (November 2015)


Economic growth is projected to remain robust, at around 7¼ per cent over the projection period. Public investment has picked up with faster clearance of key projects; better infrastructure and greater ease of doing business are promoting private investment; and more generous benefits and wages for public employees are supporting private consumption. Even so, large non-performing loans, high leverage ratios for some companies and difficulty in passing key structural reforms are holding the economy back. The current account deficit is widening as machinery imports increase, but is largely financed by rising foreign direct investment inflows.

Fiscal policy is assumed to remain supportive. Public investment in the energy, transport, sanitation, housing and social protection sectors is critical to raising living standards for all and can be financed through tax reform and reductions in subsidies. The remaining slack in the economy and the disinflation process will provide room for some monetary easing by the end of the projection period. Creating more and better jobs will require further improving the ease of doing business, modernising labour regulations, implementing the goods and services tax and making land transactions easier.

Rapid economic growth, better household access to energy and more manufacturing activity will raise energy consumption, which is now highly subsidised and carbon intensive. Despite recent hikes in coal, petrol and diesel duties, average effective tax rates on CO2 emissions remain relatively low. Phasing out subsidies for kerosene and gas and raising electricity prices would help contain emissions. Such measures risk hurting the poor, however, and so will need to be accompanied by compensating measures.

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