Containing inflation pressures also requires reducing the fiscal deficit and dealing with supply constraints that limit growth-OECD
Indian economic activity is expected to recover gradually as the rupee depreciation supports exports, infrastructure projects cleared by the Cabinet Committee on Investment come on stream and political uncertainty declines after the general election due in the spring 2014, said the Organisation for Economic Co-operation and Development (OECD).The organisation expects the Indian economy to improve marginally in the current financial year, with gross domestic product (GDP) at market prices projected to expand by 3.4 per cent in FY14, from 3.3 per cent in the previous financial year.
However, the rupee depreciation is putting pressures on inflation and the public finances, as well as on corporates and banks with high external debt exposure. Supply constraints will continue to restrain growth, adding to inflationary pressures and the current account deficit.
It has further, pegged India's GDP growth at market prices to be 5.1 per cent in 2014-15 and expected to rise to 5.7 per cent in 2015-16.
Welcoming the new monetary policy framework, which puts more weight on inflation as a policy anchor, OECD stated, However, containing inflation pressures also requires reducing the fiscal deficit and dealing with supply constraints that limit growth. The new Land Acquisition Law may promote investment, but the new Food Act will be fiscally costly. Priority should now be given to cutting energy subsidies, better targeting household transfers, implementing pending tax reforms, improving infrastructure and reforming the labour market.
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