OECD Economic Surveys: India

English
Frequency
Irregular
ISSN: 
1999-0898 (online)
ISSN: 
1999-088X (print)
DOI: 
10.1787/19990898
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OECD’s periodic surveys of the Indian economy. Each edition surveys the major challenges faced by the country, evaluates the short-term outlook, and makes specific policy recommendations. Special chapters take a more detailed look at specific challenges. Extensive statistical information is included in charts and graphs.

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OECD Economic Surveys: India 2017

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Author(s):
OECD
28 Feb 2017
Pages:
144
ISBN:
9789264269361 (EPUB) ; 9789264269354 (PDF) ;9789264269347(print)
DOI: 
10.1787/eco_surveys-ind-2017-en

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India is the fastest-growing G20 economy, thanks to ambitious structural reforms and low commodity prices. Deregulation and improvement in the ease of doing business have boosted foreign investment. However, investment is still held back by the relatively high corporate income tax rates, slow land acquisition processes, stringent regulations, weak corporate balance sheets, high non-performing loans and infrastructure bottlenecks. Quality job creation has been low, due to complex labour laws. A comprehensive tax reform would promote inclusive growth: implementation of the Goods and Services Tax would support competitiveness, investment and economic growth as will reducing the corporate income tax rate and broadening the base. Property and personal income taxes could be reformed to raise more revenue, promote social justice and empower sub-national governments. Ensuring clarity and certainty in tax legislation and employing more skilled tax officers would strengthen the tax administration. Spatial disparities in living standards are large. India is reforming relations across levels of government to empower the states and make policies more responsive to local conditions. Some states have taken the lead in improving the ease of doing business and now enjoy higher productivity and income. In rural areas, poverty rates are high and access to core public services is often poor. Farm productivity is low owing to small and fragmented land holdings, poor input management, and inefficient market conditions. In urban areas, agglomeration benefits are quickly reduced by congestion costs, in particular air pollution and long commuting time.

SPECIAL FEATURES: TAX REFORM; REGIONAL DEVELOPMENT

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  • Basic statistics of India, 2015 or latest year available

    This Survey was prepared in the Economics Department by Isabelle Joumard, under the supervision of Piritta Sorsa. Statistical research assistance was provided by Hermes Morgavi with general administrative assistance provided by Anthony Bolton and Brigitte Beyeler. The Survey also benefitted from contributions at different stages by Hugo Bourrousse, Jean-Marc Fournier; Daniela Glocker, Peter Hoeller, Paul O'Brien, Urban Sila and Alastair Thomas. The Survey was discussed at a meeting of the Economic and Development Review Committee on 19 December 2016 and is published on the responsibility of the Secretary General of the OECD.

  • Acronyms
  • Executive summary
  • Assessment and recommendations
  • Follow-up to previous OECD policy recommendations

    This annex reviews action taken on recommendations from previous Surveys. They cover macroeconomic and structural policy priorities. Each recommendation is followed by a note of actions taken since the November 2014 Survey. Recommendations that are new in this Survey are listed in the relevant chapter.

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    • Making income and property taxes more growth-friendly and redistributive

      Income and property tax reforms are crucial to promoting inclusive growth. The tax-to-GDP ratio is low, partly reflecting the relatively low income level and the high degree of informality. However, it also reflects narrow tax bases, due to a wide array of tax incentives, which distort the allocation of resources. The redistributive effect of the tax system is limited. Tax reforms should i) raise more revenue to finance much needed social and physical infrastructure while keeping public debt under control; ii) reduce inequality by increasing the redistributive effect of taxation; iii) promote productivity by reducing distortions in the allocation of resources which emanate from the corporate income tax; iv) boost job creation by eliminating the bias against labour-intensive activities; v) promote confidence, and thus investment, by improving clarity and certainty in tax rules and their implementation and vi) reinforce the ability of states and municipalities to provide key public infrastructure and services. This chapter presents the main characteristics of the tax system as well as the rationale and options for reform.

    • Achieving strong and balanced regional development

      While India’s per capita income is converging towards that of the richer countries, inequality has drifted up. Spatial inequality – across states and between urban and rural areas – is pronounced, with large differences in output per capita and in access to core public services, such as electricity, roads, and education. Implementing the GST will contribute to reduce trade barriers across states while recent changes in the federalism model are empowering states and promoting experimentation. Prompting states to modernise product and labour market regulations should allow firms in the organised sector to reach an efficient size, and promote job creation and rising incomes in all states. Raising the living standards in poorer states would also require increasing productivity in the agricultural sector by supporting farm consolidation and improving infrastructure in rural areas, particularly roads that connect villages to market towns, crop storage infrastructure and access to sustainable irrigation technologies. As working population moves out of agriculture, urbanisation will gather pace. However, exploiting cities’ potential for job creation, productivity gains and improvement in the quality of life would require better physical and social urban infrastructure. Local spending and regulatory competences should be clarified. Performance of local bodies should be assessed regularly to make them accountable. Municipalities should also be granted clear revenue-raising power (in particular property taxes and user charges for urban infrastructure) to enable them to fund better public infrastructure and services.

    • Spatial inequalities: across states or between rural and urban areas?

      Income inequality can be decomposed along at least in three dimensions:

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