2017 OECD ECONOMIC SURVEY OF INDIA Strong reforms are boosting inclusive growth Delhi, 28 February 2017
http://www.oecd.org/eco/surveys/economic-survey-india.htm http://oe.cd/1No
@OECDeconomy @OECD
Main messages
➢India is undertaking major reforms ➢Prosperity is rising quickly, but growth could be more inclusive ➢Comprehensive tax reform, building up on the landmark GST reform, would lift all boats ➢Reducing regional inequality is key 2
Growth has been very strong Average annualised GDP growth rate between 2014 and 2016Q3
% 8 7 6 5
4 3 2 1
0 -1 -2
Brazil
Russia
South Africa
Chile
Mexico
Source: CSO; and OECD Economic Outlook 100 database.
Colombia
Turkey
Indonesia
China
India
3
Inflation is under control Consumer price index
Y-o-y % change
14 12 10 8 6 4 2 0
2012
Source: Reserve Bank of India.
2013
2014
2015
2016
4
The current account deficit has narrowed Current account balance % of GDP
% of GDP
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
-7
-7
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Reserve Bank of India. 5
Exposure to external risks is relatively low External liabilities 2016Q3 or latest available
% of GDP 160
Foreign-currency
140
Total
120 100 80 60 40 20 0
India
China
Saudi Arabia
Russia
Indonesia
Turkey
Brazil
Mexico
South Africa
Note: Foreign-currency external liabilities are approximated by the sum of a positive difference between debt securities issued by nationals and residents from the BIS debt securities database (a proxy for off-shore external bond liabilities) and external liabilities for financial derivatives and other investments (the latter includes bank loans) from the IMF international investment position database. Source: Reserve Bank of India; Bank for International Settlements; and OECD calculations.
6
Structural reforms are boosting growth Key reforms approved
Key ongoing reforms
Goods and Services Tax (GST)
Competitive and co-operative federalism
Financing system for the states
Subsidies (oil, food and fertilisers)
FDI deregulation
Financial inclusion
Bankruptcy laws
Corporate income tax
Inflation targeting
Tax evasion and compliance
Budget making process
Ease of doing business
Banks Labour regulations Source: OECD compilation. 7
India has been a top reformer FDI regulatory restrictiveness index, changes over the period 2011-16 0,04 (More restrictive)
0,02 0 -0,02
(Less restrictive)
Indonesia
Argentina
Russia
Germany
Colombia
Greece
Ireland
France
United Kingdom
Egypt
Morocco
United States
Brazil
Tunisia
Japan
Italy
South Africa
Chile
Costa Rica
OECD
Korea
Mexico
Turkey
Malaysia
China
-0,06
India
-0,04
Note: The FDI Regulatory Restrictiveness Index reflects the situation at end 2016 for India and at end 2015 for other countries. Data for Costa Rica refer to the period 2012-15. Source: OECD FDI Regulatory Restrictiveness Index database.
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Inclusiveness stands high on the agenda
✓ 1.1 billion unique identification numbers (Aadhaar) created to better target support to the poor ✓ 276 million bank accounts opened for the poor since August 2014 ✓ 34 million toilets built since October 2014 ✓ 7 108 villages electrified in 2015-16 (out of the 18 452 unelectrified villages) 9
It is crucial to revive investment Investment to GDP ratio % 38 36
34 32 30 28
26 24 22 20
2007
2008
2009
Note: Gross fixed capital formation. Source: Central Statistical Organisation.
2010
2011
2012
2013
2014
2015
2016
10
Non-performing loans are high Non-performing loans September 2016 or latest data available
% of gross advances 12 10 8 6
4
Source: Reserve Bank of India and IMF.
Russia
India
Brazil
South Africa
Turkey
Colombia
Indonesia
Philippines
Chile
Argentina
China
0
Malaysia
2
11
More progress on FDI is needed FDI regulatory restrictiveness index, 2016 or latest (higher scores indicate greater restrictiveness) 0,5 0,4 0,3 0,2
Note: The FDI Regulatory Restrictiveness Index reflects the situation at end 2016 for India and at end 2015 for other countries. Data for Costa Rica refer to the period 2012-15. Source: OECD FDI Regulatory Restrictiveness Index database.
Germany
Colombia
Greece
Argentina
Ireland
France
Costa Rica
Japan
Italy
South Africa
Chile
Turkey
United Kingdom
Egypt
Morocco
OECD
United States
Brazil
Korea
Russia
Mexico
Tunisia
Malaysia
India
Indonesia
0
China
0,1
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0
Mizoram Megahlaya Kerala Nagaland Puducherry Daman & Diu Lakshadweep Delhi Goa Sikkim Manipur A & N Islands Chandigarh Assam Tripura Maharashtra Himachal Pradesh Tamil Nadu Uttarakhand Punjab Haryana Gujarat Karnataka Arunachal Pradesh Dadra & Nagar Haveli West Bengal Chhattisgarh India Jammu & Kashmir Odisha Madhya Pradesh Jharkhand Andhra Pradesh Uttar Pradesh Rajasthan Bihar
More social infrastructure is needed in some regions Illiteracy rate, persons of 15 years and above
% 45
40
35
30
25
20
15
10
5
Source: NSS Report No. 566: Status of Education and Vocational Training in India; and Census of India. Data are for 2011-12. 13
100 90 80 70 60 50 40 30 20 10 0 Bihar Uttar Pradesh Assam Jharkhand Orissa West Bengal Meghalaya India Arunachal Pradesh Rajasthan Madhya Pradesh Tripura Manipur Mizoram Chhattisgarh Maharashtra Nagaland A&N Islands Jammu & Kashmir Uttarakhand Gujarat Karnataka Haryana Andhra Pradesh Sikkim Tamil Nadu Dadra and Nagar Haveli Kerala Punjab Goa Puducherry Himachal Pradesh Chandigarh Delhi Daman and Diu Lakshadweep
Rural areas lack access to core infrastructure Households whose main source of lighting is electricity
% total
Source: Census of India 2011. 14
Public debt is high Public debt-to-GDP ratio, 2015 or latest year
% 100 90 80
70 60
50 40 30 20
Data for India are revised estimates by the Reserve Bank of India for the fiscal year 2015-16. Source: OECD Economic Outlook 100 database; Reserve Bank of India; Brazilian ministry of economy; and World Bank World Development Indicators database.
OECD
India
Brazil
Mexico
South Africa
China
Turkey
Indonesia
0
Chile
10
15
Key recommendations to strengthen macroeconomic resilience and growth ✓ Strengthen public banks' balance sheets by recapitalisation, bank consolidation and lowering the 51% government share
✓ Increase public infrastructure
spending
on
physical
and
social
✓ Gradually extend the subsidy reform to other products including fertilisers and food
✓ Raise more revenue, especially from property and personal income taxes, to ensure that government debt to GDP return to a declining path 16
Tax reforms to make growth more inclusive
GST is a landmark reform but India needs to raise more revenue Tax revenue, 2015 or latest % of GDP 40 35 30 25
20 15 10
Source: OECD Economic Outlook 100 database; OECD Revenue Statistics database; World Bank; Reserve Bank of India; Central Statistical Organisation.
OECD
Brazil
Turkey
South Africa
Colombia
Chile
Mexico
China
India
Russia
0
Indonesia
5
18
The personal income tax raises little revenue
% of GDP
Revenues on income tax 2015 or latest year available
16
14 12 10 8 6
4 0
China India Indonesia Slovak Republic Czech Republic Russia Brazil Turkey Korea Poland Hungary Slovenia Estonia Latvia Japan Greece Israel Spain Portugal Ireland Netherlands France Luxembourg OECD United Kingdom South Africa Germany Switzerland Norway United States Austria Australia Italy Canada Sweden Belgium Finland New Zealand Iceland
2
Note: Social security contributions are not included. Source: OECD Economic Outlook 100 database; OECD Revenue Statistics database; World Bank; Reserve Bank of India; Central Statistical Organisation.
19
Combined corporate tax rates are high
India
United States
Argentina
Japan
France
Brazil
Indonesia
South Africa
Mexico
Korea
Germany
Canada
China
Australia
Turkey
Italy
Russia
Saudi Arabia
Combined statutory tax rates on international dividend payments in G20 countries, 2016
United Kingdom
% 50 45 40 35 30 25 20 15 10 5 0
Note: Foreign source income is assumed to be exempted in the residence countries. For India, the 45% rate comprises the 30% CIT rate on corporate profits, plus 12% surcharge on CIT and 3% earmarked tax (on CIT and surcharge amount), plus the 15% dividend distribution tax. Source: Thomas et al. (forthcoming).
20
Reducing the corporate tax rate would attract FDI FDI net inflows in G20 countries, 2015 % of GDP 3
2
Note: FDI net inflows are the value of inward direct investment made by non-resident investors in the reporting economy net of repatriation of capital and repayment of loans. Source: OECD FDI main aggregates database.
Mexico
Canada
Turkey
China
India
United States
Indonesia
Australia
France
United Kingdom
Saudi Arabia
Italy
Russia
Argentina
Brazil
South Africa
Germany
Korea
0
Japan
1
21
More resources for the tax administration would raise tax compliance Citizens per tax administration employee 35 000 30 000
25 000 20 000
15 000 10 000
Note: Data for India relates to the CBDT. Source: OECD (2015), Tax Administration 2013: Comparative Information on OECD and other advanced and emerging economies.
India
Brazil
Indonesia
Non-OECD
South Africa
OECD
0
Russia
5 000
22
Key recommendations to ensure taxes better support inclusive growth ✓ Remove the tax expenditures that benefit the rich most (e.g. those related to housing investment) and freeze the income thresholds from which rates apply. ✓ Enable municipalities to raise more real estate taxes. ✓ Implement the reduction in the corporate income tax rate from 30% to 25% while broadening the base.
✓ Increase the number and training of staff employed in the tax administration. 23
Regional development
Regional disparities are large Regional variation in GDP per capita as a % of national average, 2013 (TL2) % 700 600
Minimum
Country average = 100
Maximum
500 400
300 200
ZAF CHN BRA IND COL IDN RUS
0
NOR IRL JPN SVN KOR CHE AUT DNK FIN GRC ESP PRT EST SWE NLD ITA TUR AUS NZL POL HUN LVA DEU FRA GBR BEL CAN CZE SVK CHL USA MEX
100
Note: Regions in OECD member countries have been classified according to two territorial levels to facilitate international comparability. The territorial level 2 (TL2) consists of macro-regions, states in the case of India. Source: OECD Regional Statistics database.
25
There is little evidence that poor states are catching up Weighted and unweighted Ginis across states over time 0,3 Unweighted Gini coefficient
Weighted Gini coefficient
0,28
0,26
0,24
Note: The population data are from Census 2001 and 2011. For the other years, population was estimated by linear interpolation and extrapolation. Source: Central Statistics Office; and NSSO.
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
0,2
1999-2000
0,22
26
Rural poverty is very high in some states
% 70
Rural poverty rate across states, with poverty line measured in terms of per capita consumption expenditure
60 50 40
30 20
0
Lakshwadeep Daman and Diu A&N Islands Chandigarh Goa Punjab Himachal… Kerala Sikkim Andhra Pradesh Jammu &… Uttarakhand Haryana Meghalaya Delhi Tamil Nadu Rajasthan Tripura Puducherry Nagaland Gujarat West Bengal Maharashtra Karnataka All India Uttar Pradesh Assam Bihar Mizoram Orissa Madhya Pradesh Manipur Arunachal… Jharkhand Chhattisgarh Dadra &…
10
Note: Poverty is calculated by using the Tendulkar methodology, which expresses the poverty line in terms of monthly per capita consumption expenditure based on a mixed reference period. Data refer to FY 2011-12. Source: Reserve Bank of India.
27
Productivity differences across states contribute to regional inequalities Labour productivity as a ratio of all India productivity 4,0
3,5
States
Union territories
3,0
2,5 2,0 1,5 1,0
0,0
Bihar Uttar P. Manipur Assam Madhya P. Andhra P. Jharkhand J&K Chattisgarh Orissa Tripura Meghalaya Rajasthan West Bengal Mizoram Nagaland India Arunachal P. Karnataka Kerala Tamil Nadu Punjab Uttarakhand Himachal P. Gujarat Maharashtra Haryana Puducherry A&N Islands Delhi Chandigarh Goa
0,5
Note: Labour productivity is measured as the ratio of value added (GDP) per worker. Source: CSO; and OECD Economic Outlook 100 database.
28
Agriculture still employs many Share of agriculture in total employment 2014 or latest year available
% 60 50 40 30 20 10 0
South Africa
OECD
Russia
Mexico
Brazil
Turkey
China
Indonesia
Notes: Employment data for China refer to the primary sector (including farming, forestry, animal husbandry and fishery). Source: NSSO; National Bureau Statistics of China; and World Bank.
India 29
Agriculture productivity is low Productivity in agriculture 2014 or latest year available
1990 PPP USD per employee 60 000 50 000
40 000 30 000 20 000 10 000 0
India
China
Indonesia
Mexico
Brazil
Turkey
South Africa
Russia
Notes: Employment data for China refer to the primary sector (including farming, forestry, animal husbandry and fishery). Source: NSSO; National Bureau Statistics of China; and World Bank.
OECD 30
States’ ability to tailor public policies is high Spending autonomy The higher the indicator, the higher the level of fiscal autonomy of sub-national government 0,7 0,6 0,5 0,4
0,3 0,2
India
Germany
Belgium
United States
Mexico
Australia
Brazil
Switzerland
Canada
Russia
Spain
South Africa
Austria
Argentina
0
Italy
0,1
Source: CSO; and OECD Economic Outlook 100 database. 31
Urban population will increase fast in India Average annual increase in urban population Millions of persons 12 10 8 6 4
Note: Forecasted data are shown in red. Source: United Nations, Department of Economic and Social Affairs, Population Division (2014).
2010 - 2050
2000 - 2010
1990 - 2000
1980 - 1990
1970 - 1980
1960 - 1970
0
1950 - 1960
2
32
Urbanisation gains are not fully exploited Productivity in the organised/formal manufacturing sector in cities Rupees 900 000 850 000 800 000 750 000 700 000 650 000 600 000 550 000 500 000
Less than 50.000
50.000 to 250.000
Over 250.000 to 1 million
Over 1 million City population
Note: Productivity is calculated as a median value added per worker in the organised manufacturing sector. Source: NSSO, Employment and unemployment survey, round No. 68; and World Bank Enterprise survey 2014.
33
Local air pollution is high Average annual concentration of fine particulates (PM2.5) in selected cities µg/m³ 250 Patna Delhi
200
150
100
50
Beijing
Moscow
Mexico city
Bangalore Bruxelles Mumbai Wien Hyderabad Paris Shanghai Berlin Johannesburg Rio de Janeiro Istanbul Amsterdam Milan Barcelona Santiago London Warsaw Budapest
National guideline (40 µg/m³ annual mean) WHO guideline (10 µg/m³ annual mean)
Los Angeles
Montreal
0 Note: Indian cities are marked in red. The other selected cities are marked in blue. PM2.5 refers to particulate matter less than 2.5 micrometers in diameter; these fine particles are particularly damaging to health as they can penetrate deep into the lungs when inhaled. Source: World Health Organisation, Ambient Air Pollution Database, May 2016.
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Key recommendations for a strong and balanced regional development ✓ Continue efforts to improve universal access to core public services ✓ Continue the benchmarking of states and strengthen the sharing of best practices, in particular on labour regulations and land laws ✓ Enable reforms in land ownership laws, improve the land registry and step up the digitisation of land records
✓ Give municipalities more and clearer spending and taxing powers 35
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