OECD Economic Survey of India 2019 - Presentation

2019 OECD ECONOMIC SURVEY OF INDIA Towards a more prosperous and inclusive India New Delhi, December, 5th 2019 http://www.oecd.org/economy/india-economic-snapshot/

@OECDeconomy @OECD

Key messages Reviving investment is key to sustaining strong growth Exports can become a new growth engine Reducing inequality will require promoting quality job creation and implementing the social welfare agenda 2

Income has grown steadily GDP developments, annualised growth rates % 12

% 12

10

10

8

8

6

6

4

4

2

2

0

CHN

IND

OECD

2000-2007

CHN

IND

OECD

2008-2013

CHN

IND

OECD

0

2014-2019Q2

Source: OECD, Analytical database.

3

Inflation hovers close to target Y-o-y % changes 12

Y-o-y % changes 12

10

10

8

8

6

6

4

4

2

2

0 2012

2013

2014

2015

2016

2017

2018

2019

0

Note: Headline inflation is measured by the change in the consumer price index.

Source: National Statistical Office.

4

The economy is becoming more competitive Export performance Index, 2003=100 240

BRA

220

CHN

IDN

IND

OECD

Index, 2003=100 240 220

200

200

180

180

160

160

140

140

120

120

100

100

80

80

60

60

40

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Note: Export performance is measured as actual growth in merchandise and services exports relative to the growth of the country’s export market.

Source: OECD, Analytical database.

40

5

Structural reforms have played a decisive role Key reforms approved

Key ongoing reforms

Goods and Services Tax (GST)

Ease of doing business and FDI liberalisation

Bankruptcy laws

Modernising labour and land regulations

Corporate income tax

Banks’ non-performing loans: recognition, resolution, recapitalisation

Real estate regulation & development (RERA)

More and better highways, rural roads and ports

Inflation targeting Electricity for all, Clean India, Housing for all Budget process and fiscal rules Wider social insurance coverage (hospital care and pensions) Subsidy reform (oil, food and fertilisers) Competitive and co-operative federalism

6

The employment rate is low Employment as a % of population, aged 15+ % 80

India, 2017-18

% 80

Emerging economies, 2018

70

70

60

60 Informal employment

50

50

40

40 Formal employment

30

30

20

20

10

10

0

Total

Women

Men

Youth (15-29 year old)

CHN

IDN

BRA

IND

ZAF

0

Total

Note: Formal employees are those with social security benefits. Data for India in the right-side panel refer to the fiscal year 2017-18.

Source: Periodic Labour Force Survey (PLFS) 2017-18, National Statistical Office; World Bank, WDI database.

7

Investment has yet to rebound Gross fixed capital formation % of GDP 50

IND

OECD

IDN

CHN

% of GDP 50

46

46

42

42

38

38

34

34

30

30

26

26

22

22

18

18

14

14

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

10

Source: National Statistical Office; OECD, Analytical database.

8

Promoting solid and sustainable growth

9

Interest rates are still high Post office monthly income scheme

% 10

Repo rate

Lending rate

% 10

9

9

8

8

7

7

6

6

5

5

4

2013

2014

2015

2016

2017

2018

2019

Note: The post office monthly income scheme is one of the small savings schemes, government-operated, used to finance central and state government debt. Interest rates on deposits from small savings schemes are set by the government.

Source: Reserve Bank of India.

4

10

A healthier financial sector would support investment Non-performing loans in the banking sector % of total gross loans

% of total gross loans

10

10

9

9

8

8

7

7

6

6

5

5

4

4

3

3

2

2

1

1

0

CAN

USA

JPN

GBR

DEU

CHN

IDN

FRA

BRA

ZAF

IND

ITA

Note: Data refer to March 2019 for India; February 2019 for South Africa; 2018Q4 for Brazil, Canada and China; 2018Q3 for France, Japan and United States; 2018Q2 for Italy and United Kingdom; 2018 for Germany and Indonesia Source: IMF, Financial Soundness Indicators database; RBI.

0

11

Fiscal space is limited % of GDP 14

% of GDP 14

Central government's fiscal deficit

States' fiscal deficit

Public enterprise borrowing requirement

12

12

10

10

8

8

6

6

4

4

2

2

0

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

Note: The fiscal deficit incorporates privatisation receipts. Public enterprises’ borrowing requirement refers to gross market borrowings (total resources less internal resources) of central government’s public enterprises. It includes borrowing needs related to investment projects. Data for fiscal year 2019-20 are budget estimates.

Source: RBI; Union Budget Expenditure Profile (Resources of Public Enterprises).

0

12

Reform is key to reduce public debt % of GDP 95

% of GDP 95 Social welfare & formalisation

90

Debt takeover

Faster reform

Baseline

90

85

85

80

80

75

75

70

70

65

65

60

60

55

55

50

50

45 2001

2004

2007

2010

2013

2016

2019

2022

2025

2028

2031

2034

2037

45 2040

Note: The social welfare and formalisation scenario assumes that public spending on education and health doubles by 2030. The debt takeover scenario assumes that the cost of taking over the debt of public enterprises and bank recapitalisation amounts to 1% of GDP every year. The faster reform scenario assumes that the government engage in bold labour and product market regulation reforms.

Source: OECD Secretariat simulations.

13

India spends little on public health care Health care expenditure

% of GDP

% of GDP 18

18 Government/Compulsory

Voluntary/Out-of-pocket

16

16

14

14

12

12

10

10

8

8

6

6

4

4

2

2

0

IDN

IND

TUR

CHN

MEX

COL

ZAF

KOR OECD CHL

Note: OECD refers to an unweighted average of 2018 or latest available observations.

Source: OECD/WHO, Health at a Glance: Asia/Pacific 2018; OECD, Health database.

BRA

GBR

CAN

JPN

FRA

DEU

USA

0

14

Tax revenue is low % of GDP 50

% of GDP 50

45

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

IDN MYS MEX PHL

IND

THA COL TUR KOR USA ZAF

JPN CAN BRA GBR OECD DEU

Note: Data for India refer to fiscal year 2018-19.

Source: Annual Report of the Reserve Bank of India, 2019; and OECD Global Revenue Statistics database.

ITA

FRA

0

15

The population is exposed to air pollution Population exposure to fine particulates (PM2.5) [ 0-10] µg/m³

[10-15] µg/m³

[15-25] µg/m³

[25-35] µg/m³

[>35] µg/m³

IND

CHN ZAF BRA IDN OECD 0

10

20

30

40

50

60

70

80

90

100

Source: OECD Green Growth Indicators.

16

Recommendations to promote solid and sustainable growth  Monetary policy should remain accommodative as long as inflation is set to remain close to the target  Reduce the spread between administered rates and market rates to improve monetary policy transmission

 Closely monitor asset quality of non-banking financial companies  Improve transparency for off-budget transactions and contingent liabilities  Raise more tax revenue by removing the tax expenditures that most benefit the rich, freezing nominal personal income tax brackets and improving compliance  Continue to open more benches and employ more and better trained professionals in commercial courts

 Further increase the share of renewable energy in meeting energy needs

17

Seizing opportunities from the global economy

18

India has become a major actor in the global economy Trade in goods and services % of world GDP 4

2018

% of world GDP 4

1996

3.5

3.5

3

3

2.5

2.5

2

2

1.5

1.5

1

1

0.5 0

0.5 ZAF

IDN

BRA

RUS

MEX

IND

CAN

ITA

GBR

FRA

JPN

DEU

CHN

USA

0

Note: Trade shares in world GDP are based on volumes at market exchange rates. Trade refers to the sum of imports and exports, 1996 refers to 1997 for India.

Source: OECD, Analytical database and OECD calculations.

19

India has a large diaspora Top 20 countries or areas of origin with the largest diasporas

Millions

Millions 18 16

2019

1995

18 16

14

14

12

12

10

10

8

8

6

6

4

4

2

2

0

TUR EGY ROU MMR PSE KAZ DEU GBR POL IDN AFG PHL UKR PAK BGD SYR RUS CHN MEX IND

Source: United Nations, Department of Economic and Social Affairs, Population Division (2019).

0

20

The export sector is relatively large, in particular for services Exports in 2018 % of GDP 50

Goods

45

% of GDP 50

Services

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

USA

BRA

JPN

Source: World Bank, World Development Indicators database.

CHN

IND

IDN

ZAF

DEU

0

21

Exports of textiles have lost steam Textile exports as a share of world textile exports % 40

%

40

BGD

34

CHN

IND

VNM

IDN

34

28

28

22

22

16

16

10

10

6

6

5

5

4

4

3

3

2

2

1

1

0 1995

1997

1999

2001

2003

Note: Low-technology textile including garment and footwear.

Source: OECD calculations based on UNCTAD data.

2005

2007

2009

2011

2013

2015

2017

0

22

Transport bottlenecks weigh on competitiveness Transport time from the warehouse to the border, 2019

Hours 90

Hours 90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

JPN Osaka

IDN CHN Jakarta Shanghai

DEU

IDN IND Surabaya Mumbai

CHN Beijing

BRA - BRA - Rio São de Paulo Janeiro

ZAF

USA New York City

IND - USA - Los Delhi Angeles

Note: Time to ship from a warehouse in a given country’s largest business city to the country’s most widely used seaport or land border of the economy.

Source: World Bank, Doing Business.

0

23

Businesses face high electricity prices Industry electricity prices, 2018 or latest year available USD/MWh 200

USD/MWh 200

175

175

150

150

125

125

100

100

75

75

50

50

25

25

0

ZAF

USA

IDN

CAN

CHN

MYS

THA

IND

FRA

GBR

BRA

JPN

DEU

ITA

0

Note: Data for India refer to 2017.

Source: IEA, World Energy Prices, 2019 edition. IEA All rights reserved. For detailed information: https://www.iea.org/statistics/prices/ 24

Import tariffs have been cut Effectively applied tariffs % 80

% 80 Capital goods

Intermediate goods

Total trade

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

1990

1996

1999

2001

2003

2005

2007

2009

2011

2013

2016

Note: Data show weighted averages of effectively applied tariffs, whereby the tariffs are weighted by the import value of each product.

Source: UNCTAD Trade Analysis Information System (TRAINS) data extracted from the World Bank, World Integrated Trade Solutions.

2018

0

25

Applied tariffs can be cut further Effectively applied tariffs, 2017

% 9

% 9

8

8

7

7

6

6

5

5

4

4

3

3

2

2

1

1

0

CAN

USA

EU

IDN

JPN

VNM

CHN

ZAF

IND

BRA

0

Note: Data show weighted averages of effectively applied tariffs, whereby the tariffs are weighted by the import value of each product.

Source: UNCTAD Trade Analysis Information System (TRAINS) data extracted from the World Bank, World Integrated Trade Solutions.

26

Reducing barriers to trade would boost exports Impact on exports of a reduction in India’s barriers to trade % change from base % change 16

Simultaneous liberalisation

14 12

20% cut in the cost of services trade restrictions

10

% change 16

14 12 10

8

8

6

6

4

4

2

20% cut in the cost of non-tariff measures on goods

20% cut in tariffs

0

20% cut in trade facilitation costs

2

0 Source: OECD estimates based on the METRO Model.

27

Recommendations to enhance India’s participation in the global economy  Invest further to improve electricity provision, roads and ports  Extend the regulatory and administrative reforms which promote productivity and job creation in special economic zones to the rest of the country  Strive for a multilateral trade agreement or, as a second best, further reduce tariffs  Simplify the tariff structure  Further reduce restrictions to services trade  Further streamline restrictions to FDI

28

Adressing social and housing challenges

29

Growth in rural incomes has been slow Rural wages in real terms Y-o-y % changes 6

Y-o-y % changes 6

5

5

4

4

3

3

2

2

1

1

0

0

-1

-1

-2

-2

-3

2014

2015

2016

2017

2018

2019

-3

Source: Labour Bureau Government of India; National Statistical Office.

30

Wealth disparities are large Share of wealth held by richest 1%, 2018 % 60

% 60

50

50

40

40

30

30

20

20

10

10

0

JPN

FRA

ITA

CAN

GBR

Source: Credit Suisse Global Wealth Databook 2018.

DEU

CHN

USA

ZAF

IDN

World

IND

RUS

0

31

India needs more doctors Practising doctors, 2018 or latest year available Per 1 000 people 4.5

Per 1 000 people 4.5 4

4

3.5

3.5

3

3

2.5

2.5

2

2

1.5

1.5

1

1

DEU

OECD

FRA

GBR

CAN

USA

MEX

JPN

KOR

COL

CHL

CHN

BRA

TUR

MYS

LKA

VNM

ZAF

IND

BGD

THA

0

0.5

IDN

0.5

0

Source: OECD/WHO, Health at a Glance: Asia/Pacific 2018; OECD, Health database.

32

Housing affordability has improved Average annual growth rates, in real terms % 12

% 12 GDP per capita

House prices

10

10

8

8

6

6

4

4

2

2

0

2012-2015

2016-2018

0

Source: OECD. 33

The government aims to provide a house for all Indians by 2022 Ratio of completed houses to total houses pledged, by state, urban areas

Goa

Gujarat

Tripura

Sikkim

Kerala

Telangana

Madhya Pradesh

Odisha

West Bengal

0

Rajasthan

0

Tamil Nadu

10

Jharkhand

10

India total

20

Uttarakhand

20

Himachal Pradesh

30

Karnataka

30

Jammu & Kashmir

40

Uttar Pradesh

40

Chhattisgarh

50

Meghalaya

50

Arunachal Pradesh

60

Andhra Pradesh

60

Punjab

70

Maharashtra

70

Bihar

80

Assam

80

Nagaland

90

Manipur

90

Haryana

% 100

Mizoram

% 100

Note: Number of completed houses as a share of total pledged houses (intended for people who meet the programme’s eligibility criteria), under the urban Pradhan Mantri Awas Yojana project.

Source: Ministry of Rural Development and Ministry of Housing and Urban Affairs.

34

Urbanisation will affect housing needs Urban population as a share of total population % 100

% 100 BRA

CHN

IDN

IND

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

1980

1985

Source: United Nations.

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

0

35

Many dwellings sit vacant Vacant dwellings as a percentage of total dwellings, latest year available % 30

% 30

25

25

20

20

15

15

10

10

5

5

0

DEU

POL

AUS

FIN

USA

CZE

HUN

IRL

IND

PRT

MEX

CHN

IDN

Source: OECD Questionnaire on Affordable and Social Housing; India Ministry of Finance Economic Survey 2017-18; China Households Finance Survey; Colliers International (2017), Jakarta Property Market Report.

0

36

Key recommendations to address social challenges  Introduce a simpler and more flexible labour law which removes disincentives for firms to create jobs  Train more general practitioners and nurses

 Extend the new income-support for farmers to tenant farmers and labourers and reduce input subsidies to the agricultural sector, in particular fertilisers  Ease rent controls by aligning states’ rent regulation to the 2019 central government’s Model Tenancy Act  Relax the Floor Space Index to allow the construction of higher buildings

 Accelerate the completion of the Housing for All scheme in urban areas

37

For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

http://www.oecd.org/economy/india-economic-snapshot/

OECD Economics OECD 38