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India economic-survey-main-findings

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India economic-survey-main-findings

  1. 1. www.oecd.org/eco/surveys/economic-survey-india.htm Follow us : OECD OECD Economics 2014 OECD ECONOMIC SURVEY OF INDIA Stronger and better growth Delhi, 19 November 2014
  2. 2. The economy is recovering but more should be done to go back to a 8% growth rate or above: 1. Less subsidies, more investment in social and physical infrastructure and tax reform would contribute to fiscal consolidation and boost incomes for all 2. Structural barriers have hampered growth and job creation, especially in the manufacturing sector 3. Parts of the banking system are vulnerable 4. More and better jobs for women would raise equity and boost growth by over 2 percentage points 5. For most Indians, health care is poor Main findings
  3. 3. 1. Reduce energy subsidies and increase investment in social and physical infrastructure 2. Implement a broad national value-added tax (GST) 3. Introduce a simpler and more flexible labour law to cover more workers 4. Strengthen bank supervision and reduce bad loans 5. Extend female quotas to state and national parliaments and strengthen the implementation of gender-related laws 6. Increase public spending on preventive and primary health care, especially in rural areas and urban slums Key recommendations
  4. 4. The Indian economy is turning around The Indian economy slowed more than many other economies since the mid- 2011, but is recovering faster Investment and exports are rebounding and should drive growth The manufacturing sector is key for future growth -10 -5 0 5 10 15 2007 2008 2009 2010 2011 2012 2013 2014 Y-o-y % change A. GDP growth¹ India Brazil Indonesia China OECD average -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 2007 2008 2009 2010 2011 2012 2013 2014 Y-o-y % change B. GDP, exports and investment¹ GDP Gross fixed capital formation Exports of goods and services - 10 - 5 0 5 10 15 20 25 2007 2008 2009 2010 2011 2012 2013 2014 Y-o-y % change C. GDP at factor costs² GDP Agriculture Manufacturing Services 1. Nominal sector share in GDP. Data for China are for year 2011. 2. For India, data are for fiscal year 2013-14. Source: Indian Central Statistics Office, OECD calculation, and World Development Indicators database.
  5. 5. Key short-term challenges Support the economic recovery by a sounder macroeconomic framework: Reduce inflation further Cut the public deficit and debt further Improve the business climate Reduce bad loans
  6. 6. Inflation expectations remain high Consumer price inflation has long been much higher than in other BRIICS Inflation expectations remain stubbornly high Adopting the flexible inflation-targeting framework will help to contain inflation expectations and thus support saving and investment decisions 1. The consumer price index (CPI) inflation is shown. Year 2014 is based on the data of the first nine months. Source: OECD Outlook 96 database and Reserve Bank of India. 0 2 4 6 8 10 12 14 2007 2008 2009 2010 2011 2012 2013 2014 Y-o-y % change B. Inflation expectation and the actual CPI inflation Inflation expectations: Current CPI -2 0 2 4 6 8 10 12 14 2007 2008 2009 2010 2011 2012 2013 2014 Y-o-y % change A. Inflation is higher than in other EMEs and the OECD area¹ India Brazil China Indonesia
  7. 7. Public deficit and debt are still high Despite fiscal consolidation at the central government, the public debt and debt are high Public spending efficiency and targeting should be improved. Subsidy reforms and the implementation of the unique identification number (Aadhaar) are key. India also needs to raise more revenue in a less distortive way – implementing the GST is essential Source: Brazilian Ministry of Economics, CEIC, Chinese Ministry of Finance, IMF, OECD Analytical database, OECD Economic Outlook 96 database and World Bank. 0 1 2 3 4 5 6 7 8 9 10 11 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 % of GDP A. Recent developments in India States' fiscal deficit Central government's fiscal deficit 0 20 40 60 80 100 120 0 20 40 60 80 100 120 CHL CHN IDN TUR ZAF MEX BRA IND OECD % of GDP% of GDP B. General government debt in emerging countries, 2013 or latest year available 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 MEX CHN TUR IDN BRA CHL ZAF OECD IND % of GDP% of GDP C. General government deficit in emerging countries, year 2013 or latest year
  8. 8. External vulnerability is a less immediate concern The current account deficit has narrowed Gross foreign liabilities are low, though dominated by debt with a short-term component Net FDI is lower than in the late 2000s Competitiveness has deteriorated, threatening exports 1. Real effective exchange rate (REER) based on consumer prices. An increase implies a loss of competitiveness. 2. Or latest available figures. Source: India Ministry of Commerce and Trade, Reserve Bank of India, OECD - International trade and balance of payments database, OECD - National accounts database, Bank for International Settlements and IMF Balance of Payments Statistics. -2 0 2 4 6 8 10 12 14 16 2007 2008 2009 2010 2011 2012 2013 2014 % of GDP A. The current account deficit has recently narrowed Current account deficit Trade deficit Net FDI 0 20 40 60 80 100 120 POL ZAF MEX TUR BRA RUS IDN CHN IND % of GDP B. Gross foreign liabilities are low 2013² 2007 0 10 20 30 40 50 60 70 80 TUR IND POL MEX RUS IDN CHN BRA ZAF % C. Debt accounts for a large share of gross foreign liabilities 2013² 2007 0.01 0.012 0.014 0.016 0.018 0.02 0.022 0.024 0.026 0.028 75 80 85 90 95 100 105 USD for Rupee (2010 = 100) D. Competitiveness has deteriorated Competitiveness indicator, (REER)¹ 2000-08 REER average Nominal exchange rate (RHS)
  9. 9. Banks are in poor shape and the private bond market is too small 1. In percentage of gross advances. The NPL ratio is the ratio between the value of non-performing loans (NPL) and the total value of the loan portfolio. 2. The Capital to risk-weighted assets ratio (CRAR) is equal to the capital of the bank divided by aggregated assets weighted for credit risk, market risk and operational risk. Source: IMF Financial Soundness Indicators database and Reserve Bank of India. The banking sector is dominated by public banks. They are the least profitable and hold majority of distressed assets. The steady rise of distressed assets is a concern. Banks and financial institutions are required to invest a significant share of their financial holdings in government securities. The corporate bond market cannot meet long-term financing needs. 0 1 2 3 4 5 6 7 8 9 10 0 5 10 15 20 25 India Brazil China SouthAfrica Philippines Malaysia Turkey Colombia Indonesia Argentina %% A. Soundness and profitability are low 2014 Q2 or latest available data Regulatory capital to risk-weighted assets Return on assets (RHS) 0 2 4 6 8 10 12 14 16 Total Public sector Private sector Foreign % B. Distressed assets are concentrated in public sector banks¹, March 2014 Gross non-performing assets Restructured loans 0.0 0.5 1.0 1.5 2.0 0 5 10 15 20 Public sector Private sector Foreign %% C. Public sector banks are underperforming, March 2013 Capital assets ratio (LHS)² Return on assets (RHS) 0 5 10 15 20 25 30 35 40 45 Indonesia India South Africa Brazil China Russia % of GDP D. Bond market capitalisation (2011) Private bond market Public bond market
  10. 10. Longer-term challenges  Reduce barriers to the growth of the manufacturing sector to create more and better jobs  Use more effective and better targeted social spending to make growth more inclusive  Increase economic opportunities for women
  11. 11. A jobless growth so far … while more people will enter the labour force Employment creation has not kept up with the growing working age population and has benefitted mostly men Demographics will favour labour force growth up to the 2040s More than 100 million people may enter the labour force between 2010 and 2020, mainly a young and more educated cohort An increase in the very low female labour force participation would also raise the supply of workers 1. According to the ILO definition, working age population is made of individuals aged 15 or more. 2. The age dependency ratio is the ratio of the population younger than 15 or older than 64 to the working-age population, which is those aged 15-64. From 2015 World Bank projections are shown. 3.The labour force participation of women is equal to the percentage of working women aged 15-64 over the overall female population aged 15-64. Data refer to the simple average of the dependency ratio for each period. Source: ILO (2013), Key Indicators of the Labour Market (KILM) database, OECD (2014) Perspectives on Global Development and World Bank WDI databank. 50 51 52 53 54 55 56 57 58 59 60 50 51 52 53 54 55 56 57 58 59 60 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 %% A. Employment creation has not kept up with the growing working age population Ratio of employment to working age population¹ 0 10 20 30 40 50 60 70 80 90 100 IND BRA CHN IDN MEX RUS ZAF OECD B. The dependency ratio is projected to decline up to the 2040s² 1991-2050 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 IND BRA CHN IDN MEX RUS ZAF OECD C. The labour force participation of women is low³ 1991-1995 1996-2000 2001-2005 2006-2012
  12. 12. Manufacturing has created few and low quality jobs Net job creation in the manufacturing sector has been poor Most new jobs are with firms with more than 10 employees and with temporary contracts and no social security benefits 1. Employment is based on usual principal and subsidiary status. 2. Informal workers are those with no social security benefits (Mehrotra et al., 2014). Source: OECD Labour market statistics, NSSO, Employment and unemployment survey, rounds no. 61 and 68; and Mehrotra et al. (2014). -40 -30 -20 -10 0 10 20 30 Agriculture Construction Manufacturing Services and white-collar Total Change in millions A. Employment creation¹ in the manufacturing sector has been low, 2005-12 -1 0 1 2 3 4 5 6 Formal Informal Total Formal Informal Total Change in millions B. Most manufacturing jobs created over the period 2005-12 were informal² Organised Unorganised
  13. 13. Manufacturing has not contributed much to the growth of GDP and exports Productivity in the manufacturing sector tends to be low, reflecting the small size of firms Manufacturing has contributed little to GDP growth 1. The productivity is measured by gross value added at basic prices divided by the number of hours worked. This measure is then converted in current USD using the PPP conversion factor for GDP. 2. The productivity of labour is measured in terms of value added per worker. Value added is measured in rupees. Source: World Input Output Database and Worldbank WDI database; ASI 2010-2011 Summary results for the Organised sector, Key Results of Survey on Unincorporated Non- agricultural Enterprises (excluding construction) in India (2010-2011) Indian Central Statistics Office; OECD calculation. 0 5 10 15 20 25 30 35 IND CHN BRA MEX RUS TUR IDN USD PPP A. Value added per hour worked¹, 2009 Manufacturing Services 0 200 400 600 800 1 000 1 200 1 400 Unorganised sector 0-14 15-19 20-29 30-49 50-99 100-199 200-499 500-999 1000-1999 2000-4999 5000+ Organised sector Value added per worker Number of employees B. Productivity is low in smaller firms² 0 10 20 30 40 50 60 70 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-… 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 % C. Indian manufacturing has not risen as a share of GDP Sectoral decomposition of GDP Agriculture Manufacturing Industry non manufacturing Services 20 40 60 80 100 120 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 % D. Manufacturing exports in total merchandise exports Brazil China India South Africa
  14. 14. There are barriers to manufacturing growth Labour regulations become relatively stringent and costly to comply with when firms grow The quality of infrastructure is below par Taxes are complex and costly to comply with The business environment is cumbersome and the outdated bankruptcy law makes it difficult to reallocate capital to most productive activities Source: OECD Employment Protection Database, 2013 update; World Bank Online Database; PWC Paying Taxes, 2014 Report; World Bank Doing Business database. 0 1 2 3 4 5 6 USA CAN GBR NZL HUN CHE IRL AUS JPN EST SVK MEX ESP OECD ISL GRC BEL DNK AUT POL EU TUR NOR LUX KOR ISR FIN SVN ITA SWE CHL FRA DEU NLD CZE PRT BRA ZAF RUS CHN IND IDN A. Employment protection legislation is highly restrictive, 2013 0 10 20 30 India Brazil Mexico Indonesia South Africa World Chile OECD China Korea In % of the output B. Electric Power Transmission and Distribution (T&D) losses 1990 2000 2010 2011 0 100 200 300 400 500 United Kingdom Canada France UnitedStates Russia SouthAfrica Colombia Germany Indonesia Italy Japan China Argentina Brazil² Hours per year C. Time to comply with taxes for small and medium-sized enterprises Consumption tax Labour tax Corporate income tax 736 490 1374 India OECD ARG AUS AUTBEL BRA CAN CHL CHN COL CZE DNK EST FIN FRA DEU GRCHUN ISL IND IDN IRL ISRITA JPN KOR LUX MEX NLD NZL NOR POL PRT RUS SVK SVN ZAF ESP SWE CHE TUR GBR USA 0 20 40 60 80 100 0 1 2 3 4 5 Recovery rate (cents on the dollar) Time (years) D. There is scope to improve the insolvency legislation and debt-recovery rates
  15. 15. Women’s economic participation is low • Gap with men is over 50% • Regional differences are large – more women work in the southern states • More than half of working women are paid or unpaid self- employed • Women wages are often half on men’s at similar education levels Notice: Data refer to working age population (15 to 64 years). The gap is male minus female participation rate. Source: ILO, Economically Active Population, Estimates and Projections (6th edition, October 2011); and NSSO, Employment and Unemployment Survey, Rounds no. 43, 50, 55, 61, 66 and 68. 0 10 20 30 40 50 60 70 Illiterate Literate Primary Middle Secondary Graduate % B. LFPR by education - urban 2000 2005 2010 2012 0 10 20 30 40 50 60 70 Illiterate Literate Primary Middle Secondary Graduate % C. LFPR by education - rural 2000 2005 2010 2012 0 10 20 30 40 50 60 RUS CHN OECD average ZAF BRA IDN IND % A. Gap in male-female labour force participation rate
  16. 16. Low participation reflects complex factors • Social status of staying home • Discriminatory labour laws • Weak implementation of gender-related laws • Bias in inheritance laws affects access to collateral • Jobless growth 1. Data refer to working age population (15 to 64 years). Source: OECD, Gender, Institutions and Development Database 2012; and NSSO, Employment and unemployment survey, rounds no. 55, 61, 66 and 68. Net increase in…. 2000 2012 Change 2000-12 Working age population 304 403 99 Labour force Employment 123 129 6 Unemployment 2 3 1 Remaining outside labour force In education 18 42 24 Not in education 161 229 68 Working age population 326 427 101 Labour force Employment 274 343 69 Unemployment 7 8 1 Remaining outside labour force In education 32 61 29 Not in education 13 15 2 Unemployment rate by education¹ Employment trends Millions, 15-64 years of age Female Male 0 5 10 15 20 25 30 35 Illiterate Literate Primary Middle Secondary Graduate % B. Urban female 2000 2005 2010 2012 0 5 10 15 20 25 30 35 Illiterate Literate Primary Middle Secondary Graduate % C. Rural female 2000 2005 2010 2012 0 0.2 0.4 0.6 0.8 1 Discriminatory Family Code Restricted Physical Integrity Son Bias Restricted Resources and Entitlements Restricted Civil Liberties A. Social institutions and gender index (SIGI) Brazil China India South Africa
  17. 17. Health and well-being can be vastly improved Health outcomes have improved but remain below par Poor living conditions – including low access to sanitation – play a role Public resources invested in health care are limited, unequally spread, and quality is often an issue 1. Nearest available year. Source: OECD (2014), Health Database; World Bank (2014), World Development Indicators Database; and WHO (2014), Public Health and Environment Database. 83.2 82.5 82.1 82.1 81.5 81.3 81.0 81.0 81.0 80.7 80.2 78.9 78.7 76.5 75.6 75.2 75.2 74.8 74.6 74.4 74.2 74.1 73.7 70.7 70.3 70.2 66.4 66.3 56.1 0 20 40 60 80 100 120 Japan Spain Australia France Canada Korea Germany Ireland United… Greece OECD Chile UnitedStates Estonia VietNam China Hungary Malaysia Turkey Mexico Thailand SriLanka Brazil Indonesia Bangladesh RussianFed. Pakistan India SouthAfrica A. Life expectancy at birth 2012 ¹ 1970 ¹ 0 10 20 30 40 50 60 70 1990 1995 2000 2005 2010 % B. Rural population with access to improved sanitation China India Indonesia South Africa Brazil 0 2 4 6 8 10 12 RussianFed. Germany Australia OECD France United… Canada UnitedStates Japan Mexico Korea Brazil Chile Turkey China Malaysia VietNam Philippines Pakistan SouthAfrica India SriLanka Myanmar Thailand Bangladesh Indonesia Cambodia Per 1 000 persons C. Number of doctors and nurses 2012 or latest year available Doctors Nurses
  18. 18. More information… Compare your country data visualization tool OECD Economic Surveys: India 2014 • Read this publication • Website with additional information www.oecd.org/eco/surveys/economic-survey-india.htm OECD OECD Economics Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
  19. 19. Key recommendations to strengthen the monetary and fiscal policy frameworks • Implement flexible inflation targeting • Pursue fiscal consolidation while avoiding one-off measures and cuts in growth- enhancing spending • Shift public spending away from energy subsidies towards investment in physical and social infrastructure. • Implement a national value-added tax (GST) with only limited exemptions
  20. 20. Recommendations to raise the effectiveness of the financial sector • Strengthen bank supervision by early recognition of asset deterioration and stricter provisioning standards • Wind down bank lending obligations to priority sectors and gradually reduce the proportion of government bonds required to be held by banks and institutional investors (statutory liquidity ratio) • Further ease restrictions on bond market investments by foreign institutional investors • In promoting financial inclusion, rely further on mobile banking and branching through local businesses, allow MFIs to take deposits
  21. 21. Key recommendations to improve labour market performance • Reduce barriers to formal employment by introducing a simpler and more flexible labour law which does not discriminate by size of enterprise • Continue improving access to education, especially at the secondary level, and better focus on the quality of education at all levels. Provide better and earlier vocational training
  22. 22. Recommendations to improve the quality of infrastructure • Impose clear timelines, rationalise documentation, and implement single- window clearance • Improve the land registry. Assess and amend as needed the new land acquisition law. The government should review the timelines within the Bill and aim to make land acquisition faster
  23. 23. Recommendations to improve the business environment • Continue improving the business environment and opening up the economy • Strengthen governance of state-owned enterprises, and reduce public ownership over time • Further simplify regulations and reduce administrative burdens on firms. Introduce a modern bankruptcy law
  24. 24. Key recommendations to increase female economic participation • Extend female quotas to state and national parliaments • Further modernise labour laws to ensure equal work opportunities for women • Enhance the implementation of gender- related laws • Expand secondary and higher education for women and skills training for female entrepreneurs
  25. 25. Key recommendations to improve health outcomes for all • Increase public spending on health care with particular focus on preventive and primary care, especially in rural areas and urban slums • Expand the number of health professionals and up-skill professionals located in rural areas • Strengthen the management of public health care facilities and ensure that private facilities and their employees meet minimum quality standards

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