Indian economy to grow 6.5% in FY21; private investment to bounce back: OECD

The Organisation for Economic Co-operation and Development (OECD) comprising 36 member countries in its latest report has said India's economic growth will remain at 6.5 per cent in FY21, indicating that as "election-related uncertainties fade and monetary and fiscal policies become accommodative", the economy is projected to rebound. The report says private investment in India will bounce back as capacity utilisation rises and the cost of borrowing for the corporate sector declines. The report did not give a projection for FY20.

India's GDP grew at 6.81 per cent in FY19. However, the economic growth declined to a five-year low of 4.5 per cent for Q2 of FY20 in September. It had registered 5 per cent growth in the previous April-June quarter. The last time India witnessed a GDP growth of less than 5 per cent was in the fourth quarter of FY13 when it grew at 4.3 per cent.

However, the latest OECD report gives some hopes of revival in the year to come. The report said the Modi government's income support scheme for farmers and good monsoon will help in boosting private consumption. The government's initiatives to revive the economy, including a reduction in a corporate tax cut, will also support corporate investment.

Also read: GDP growth slows down to 4.5% in September quarter; lowest in 6 years

The report said while inflation and the current account deficit will remain moderate, given the relatively large spare capacity in the economy and low oil prices, job creation is a "challenge". The OECD said as inflation in India remains "below target", there's still some room for further accommodation in monetary policy.

It said many banks are yet to transfer large cuts in RBI policy rates, which have not yet been fully reflected in lower lending rates.  The government needs to implement further reforms to improve financial sector soundness and the ease of doing business to revive corporate investment, it added. The measures suggested in the report include re-building fiscal space, more tax reforms and retraining of borrowings from public enterprises and banks.

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Explaining that though India has succeeded in seizing some of the market shares lost by other countries and exports have proved relatively resilient, its growth has slowed down rapidly. "Stress in non-banking financial companies, coupled with changes in insurance regulations, has affected car sales, while volatility in fuel prices has weighed on consumer confidence. Construction has been hurt, as non-banking financial companies contribute a large share to its financing, weighing on job creation, income and consumption. Industrial production and related imports have weakened," the report said.

Meanwhile, Moody's Investors Service had recently cut India's economic growth forecast for the current financial year to 5.6 per cent from 5.8 per cent estimated earlier on grounds that GDP slowdown is lasting longer than previously expected.

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