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
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