India’s economy is coming out of its worst slowdown in a quarter-century, but needs major structural reforms if it is to return to pre-2011 growth levels, the Organisation for Economic Co-operation and Development (OECD) said yesterday.
The OECD said in its India Economic Survey that annual growth should top 6.5 percent in the coming years, but reducing barriers to manufacturing growth was “critical.”
India’s growth has languished at below 5 percent for the last two financial years, hit by high interest rates, stubborn inflation and weak investment.
The OECD report called for a “simpler and more flexible labor law, covering more workers, coupled with better education and training programs.”
India’s economy grew by 4.7 percent in the prior fiscal year to March and the central bank projects 5.5 percent expansion this year.
“Structural reforms would raise India’s economic growth,” the report said. “In their absence, however, growth will remain below the 8 percent growth achieved during the previous decade.”
Indian Prime Minister Narendra Modi, whose Hindu nationalist Bharatiya Janata Party government was elected to power in May, has already taken some action to chop away at India’s thicket of regulations, seen by economists as discouraging crucial investment.
However, the report said the government needed to do more to simplify the nation’s infamous bureaucratic red tape to speed up commissioning of industrial projects and other investment.
It must also improve governance to crack down on widespread corruption, the report said.
Separately, Anglo-Dutch energy giant Royal Dutch Shell has won a multimillion-dollar court battle against Indian authorities, marking a significant victory for multinationals involved in tax wrangles in the nation.
The Bombay High Court ruled in favor of Shell, whose Indian unit was accused of underpricing shares issued to its parent firm by about 180 billion rupees (US$2.91 billion).
The company had challenged a demand by Indian authorities for tax on the interest that would have been earned. The judges on Tuesday quashed the income-tax department order, a move Shell welcomed.
“This is a positive outcome which should provide a further boost to the government initiatives to improve the investment climate,” the company said in a statement.
The high tax claim was one in a series ordered by Indian authorities on foreign firms including HSBC Holdings PLC, IBM Corp and Nokia Oyj. A court ruled last month in favor of British mobile giant Vodafone Group, which had been engaged in a US$490 million tax battle with Indian authorities after they accused the company of also underpricing its shares.
Foreign companies allege that Indian tax laws are sometimes applied in an uneven and capricious manner, making it difficult to do business in the nation.
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