2007 OECD Economic Surveys: India 2007

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OECD's first economic survey of the Indian economy. It opens with a broad overview of economic developments over the past twenty years, showing how India has grown to become the third largest economy in the world. It then examines a series of specific policy areas including the unbalanced growth across states, competition policy and reforming India's product and service markets, improving the performance of labour markets, improving the financial system, improving the fiscal system, improving infrastructure, and upgrading the educational system. For each policy area, a series of recommendations is made. This book includes StatLinks, URLs linking tables and graphs to Excel® spreadsheets with the underlying data.

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India's key challenges to sustaining high growth

The Indian economy has undergone a remarkable transformation over the past two decades. The growth rate of average incomes has increased from 1¼ per cent prior to 1980 to 7% by 2006. Between 1999 and 2004, the absolute number of people living under the national poverty line has fallen for the first time since Independence. Faster growth has been brought about by a paradigm shift in economic polices that has opened the economy to foreign trade and markedly reduced direct tax rates and government influence over most investment decisions. Despite this favourable performance, there is still much room for improving policy settings to further raise growth potential. This chapter first looks at India’s past reforms and the main sources of its improved growth performance and then identifies a number of key challenges that could make growth faster, more sustainable and more even across the country: i) making goods and service markets more competitive; ii) enhancing employment in the formal sector through broadranging labour market reforms; iii) further liberalising the banking sector; iv) improving public finances to achieve more rapid growth through a more ambitious fiscal consolidation, reducing subsidies and further reducing tax distortions; v) improving infrastructure and facilitating urbanisation by involving private players more intensely; and vi) upgrading the quality of educational outcomes through institutional reforms.

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