New Delhi, February 28: Despite the demonetization policy of the government, most of the agencies predicted that the growth rate of India will be healthier enough. Notably, the Organisation for Economic Co-operation and Development (OECD) has projected India's GDP growth to 7 percent in the current financial year and rise gradually to 7.3 percent in the next year and 7.7 percent in 2018-19.
In its Economic Survey, the Global think-tank said, demonetisation may have impacted short-term growth but the long term effects would include important gains going forward. It suggested that India should bring down corporate tax rate from 30 percent to 25 percent.
The OECD said comprehensive tax reforms, especially the Goods and Services Tax, would raise revenue of all stakeholders. The survey also said a comprehensive reform of property, personal income and corporate taxes is needed to complement the GST reform.
The Survey points out the need to make income and property taxes more growth-friendly and redistributive. A comprehensive tax reform could help raise revenue to finance much-needed social and physical infrastructure, promote corporate investment, enable more effective redistribution and strengthen the ability of states and municipalities to better respond to local needs, according to the Survey.
The OECD points out that achieving strong and balanced regional development will also be key to promoting inclusive growth. Inequality in income and in access to core public services between states and between rural and urban areas is currently large across India, while rural poverty is pervasive. Continuing efforts to improve universal access to core public services is essential.
Recent changes in India’s federalism model have given states more freedom and incentives to modernize regulations and tailor public policies to local circumstances. Ranking states on the ease of doing business are opening a new era of structural reforms at the state level and will help unleash India’s growth potential. Further benchmarking among states and strengthening the sharing of best practices, particularly on labour regulations and land laws, could add to the reform momentum.
Raising living standards in poorer states will require increasing productivity in the agricultural sector. With employment expected to gradually shift away from the agricultural sector, urbanization will gather pace. Thus, better urban infrastructure will be needed to fully exploit cities’ potential for job creation, productivity gains and improving the quality of life.
Noting that wealth in India is extremely concentrated, OECD made a case for the introduction of inheritance tax with a high exemption threshold and raising the scope for property tax. OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.
Earlier, the International Monetary Fund (IMF) said demonetisation would have the only short-term impact on the economy and it would bounce back to its expected growth of more than 8 percent in the next few years. Whereas, the International rating agency Moody's Investors Service predicted that India will be the fastest-growing economy among G-20 countries clocking a 7.1 percent growth in the year 2017.
However, after demonetization, many institutions and political parties slammed government and said the economy of India will be affected negatively. Some leaders also claimed demonetization to be the biggest scam of the decades.
Background: On 8th November 2016, Prime Minister Modi suddenly announced the decision of demonetization. This step was taken primarily for curbing of corruption, black money and terrorism. After that PM Modi, Finance Minister Arun Jaitley, RBI Governor and known economists have said that the demonetization will have a short-term negative impact but a long-term positive impact.