New Delhi, Oct 9 (UNI) India can sustain its 10 per cent growth rate if it continues to pursue its ambitious and wide-ranging reforms, said a new Organisation for Economic Co-operation and Development (OECD) survey.
In its first survey on the Indian economy, Paris-based OECD said India needs to improve its business environment, overcome the challenges of infrastructure bottlenecks, address the problems of public finance and undertake labour reforms.
''The government's target of reaching GDP growth of 10 per cent in 2011 is achievable if reforms continue. In addition, if the relatively restrictive states improve their regulatory frameworks towards that of the better-run states, growth will be more inclusive and income gaps across states will narrow,'' said OECD.
The impressive response on the Indian economy to past reforms should give policy makers confidence that further liberalisation will deliver additional growth dividends and foster the process of pulling millions of people out of poverty, it added.
A Goldman Sachs report says that India can overtake Italy, France and the UK to become the world's fifth largest economy if it keeps up its current pace of expansion.
The survey says state governments need to become much better organised and build on improvements made at national level. A new bankruptcy law is needed to simplify restructuring of insolvent firms and reducing the role of courts. ''It has to be a business process than a legal process.'' On the infrastructure front, the survey states that with economic expansion the need for infrastructure is growing very rapidly and the regulations where private sector has been asked to participate has proved enormously successful.
However, in certain sectors, OECD says the sector lags behind.
In the electricity sector, the government has been gradually implementing new policies but the progress at the state level has been uneven. ''Cross subsidies still exist. While electricity for household sector is among the lowest in the world, those for the industries in some states are one of the highest in the world. In one case it produces waste and in the other case in the other case it is reducing competitiveness.'' OECD says losses in transmission and distribution still continue to be disappointing with some states paying for only 60 per cent of what is produced. ''There is ample room for improvement even if electricity production and distribution continue with the government and not private players.'' On the issue of public finance, OECD states that a faster growth will require more investment and that will mean additional domestic savings if the expansion has to stop short of higher inflation and unsustainable growth.
''Therefore the fiscal policy needs to ensure acts to encourage savings. In the past, it added to the savings and now it is reducing its deficit very fast. All improvements are the progressive adoption of fiscal legislative responsibility in the country.'' The long-term growth can be bolstered by continuing the perfect fiscal consolidation and by adopting the fiscal responsibility and budget management act for the next five years. This will free resources for private investment and will also show result with visible signs of fiscal discipline, it added.
However, OECD says more is needed to be done in the fiscal front rather then reducing deficit. The efficiency of public spending has to be improved.
''Government spends four rupees to provide one rupee of food and fuel subsidies. At the same time, existing tax base need to be reviewed to lower direct tax rates,'' said the survey.
The efficiency of spending in public education need to be upgraded to respond to the increasing demands for skilled manpower, it added.