With the issue of corruption taking centre stage in public discussion, the Organisation for Economic Co-operation and Development (OECD) wants India to have transparency in involving the private sector in areas where government licensing and regulation are required.
“In all areas of the economy, and especially those that depend on government licensing and regulation, it is crucial that private sector involvement takes place transparently and on a level playing field in order to avoid high-level corruption,” OECD said in its Economic Survey of India, 2011.
The survey said India needed to strengthen its anti-corruption agency through an independent appointment mechanism for its head. It said public sector governance should be made more transparent and accountable by separating operational and regulatory functions in the provisions of public services.
It called for merging regulations of asset managers (life insurance, mutual and pension funds), besides separating the operator of the National Pension System from its regulator. The Pension Fund Regulatory and Development Authority is the interim pension regulator.
OECD wanted the Reserve Bank of India to sell its electronic government bond market and the clearing house to the private sector and move the regulation of foreign exchange markets and of the government bond market to the Securities and Exchange Board of India.
It wanted the government to modify capital controls to allow more foreign investment in the government and corporate bond markets. At present, foreign institutional investors can invest up to $10 billion in government securities, $15 billion in corporate bonds and $25 billion in long-term corporate bonds (for infrastructure).
The survey called for food coupons for better delivery of food subsidy, an idea mooted by Chief Economic Advisor Kaushik Basu, and direct cash transfer.
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On long-term growth trajectory, it said India had potentials to raise annual economic growth to 10 per cent and this pace could be maintained for the remainder of the decade. “This would entail per capita income growth of around 8.5 per cent, up from 7.2 per cent in 2010,” the survey said.
Prime Minister’s Economic Advisory Council chairman C Rangarajan, however, said the country was likely to see growth of about 8.5 per cent in 2011-12 and had the potential to grow by 9 per cent annually.
OECD advised India to keep a close watch on spiralling inflation and volatile capital flows and wanted the RBI to further tighten monetary policy.
A startling picture on spending on health by the government came to light through the survey. It said only seven governments in the world spend less on health than India (as a per cent of gross domestic product). The report said a small number of “state-owned banks will continue to need capital injections, which could be best done via sales of shares”.
India is not a part of OECD, a grouping of mostly developed nations and members of the bloc account for over 60 per cent of the global economy.