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India has the potential to clock double-digit growth in the medium term, provided right policies are in place and demographic developments push the savings rate higher, according to Paris-based think tank OECD.
“Inclusive growth of 10 per cent per year is feasible given that demographic developments are set to push up saving, but will only be achieved if the administrative and regulatory barriers facing companies are reduced,” the OECD’s Economic Survey of India released today said.
The Indian economy is projected to expand at over 8 per cent this fiscal.
Speaking on the occasion, the Prime Minister’s Economic Advisory Council (PMEAC) Chairman, Dr C. Rangarajan, said the country is likely to see a growth of about 8.5 per cent in 2011-12 and has the potential to grow by 9 per cent annually.
The Organisation for Economic Cooperation and Development (OECD) noted that sustainability of growth would depend on increased capital inflows and higher domestic savings.
Calling for further reduction in trade and foreign direct investment barriers, the report said that the growth is set to remain strong in the near term on the back of private consumption and investment.
“However, sustaining high growth hinges on sound monetary and fiscal policies,” it added.
OECD, a 34-member grouping of mostly industrialised nations, also cautioned against rising inflation and volatile capital inflows.
Regarding price rise, it has pitched for “further incremental tightening” since the economy is back on a high-growth trajectory.
Headline inflation rose to 9.06 per cent in May, a development that is likely to see the Reserve Bank of India further hiking rates.
“Longer term capital inflows can be increased by eliminating remaining controls over direct investment and allowing foreigners to purchase government bonds,” the think tank said.
Noting that India has been a “stand outperformer” in the global economy, the OECD Secretary General, Mr Angel Gurria, said the nation has benefited from reforms.
On India’s financial sector, the report said that a small number of “state-owned banks will continue to need capital injections, which could be best done via sales of shares”.
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