2019 OECD Economic Surveys: India 2019

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India has been a growth champion in recent years and has succeeded in taming inflation, the current account deficit and non-performing loans. India's participation in the global economy has risen, with outstanding performances in some services, while the largest diaspora in the world is an asset in developing new markets. India has also lifted many millions of people out of poverty and has made access to housing for all a priority. Ambitious structural reforms – including better targeted household support, financial inclusion initiatives, the implementation of the Goods and Services Tax, the Insolvency and Bankruptcy Code, the new approach to federalism and the corporate income tax reform – have played a key role. The recent economic slowdown and still large number of poor and under-employed people call for a renewed impetus on structural reform. Priorities include: creating fiscal space to finance more and better physical and social infrastructure (in particular health and education), modernising labour laws to remove disincentives for firms to create jobs and employ women, continuing to improve financial sector’s health, further reducing restrictions to trade, and improving property rights and rent regulations to achieve better housing for all.


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Challenges and opportunities of India’s enhanced participation in the global economy

India is becoming a key player in the global economy partly reflecting the reduction in tariffs since the early 1990s and relatively low non-tariffs barriers. It performs extremely well in exporting information and technology services, pharmaceuticals and petroleum products. India’s large diaspora is well integrated abroad, helping to develop new export markets and facilitate the transfer of technology and know-how. However, India could perform better in some domains. These include labour-intensive manufacturing exports, where India has a clear competitive advantage, and foreign direct investment. Better performance in these areas would boost job creation and thus make growth more inclusive. It would require improving further infrastructure, in particular transport and energy provision, modernising product market regulations, developing skills, and reconsidering barriers to trade and investment. OECD simulations suggest that India would be a major beneficiary were barriers to trade and investment be reduced multilaterally. In the absence of a multilateral agreement, the economy would also gain from further liberalisation of trade and investment. Although India faces restrictions on its export markets, OECD simulations suggest that if India cuts tariffs and non-tariff measures restricting trade by 20% and improve trade facilitation, domestic production would rise by about 3%, exports by 14%. It would also create jobs in the manufacturing sector.



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