India's economy will accelerate in 2015/16 but will fail to attain the heady growth rates of the past decade without sweeping structural reforms, the Organisation for Economic Cooperation and Development (OECD) said.
In a country survey, the Paris-based think tank forecast that Asia's third-largest economy would grow by 6.6 per cent in 2015/16, up from its last forecast of 5.7 per cent growth in May. Growth would edge higher to 6.8 per cent in 2016/17, it said.
"The economy has shown signs of a turnaround and imbalances have lessened," the OECD said in the report which, while providing comfort to Prime Minister Narendra Modi that things are looking up, highlighted tough choices ahead.
Modi's election by a landslide earlier this year has lifted business confidence, while fiscal consolidation and easing pressures on inflation and the current account deficit all point in the right direction.
In its latest forecast, the OECD said it expected inflation to fall to 5.4 per cent in 2015/16 and nudge higher to 5.6 per cent the following fiscal year, after 6.9 per cent in 2014/15. In May, it forecast that inflation would remain above 6 per cent over the next few years.
Yet while current risks are broadly balanced, the medium- term outlook is less bright. Exports are constrained by supply-side bottlenecks, while high corporate borrowing and deteriorating asset quality at banks "may put the investment recovery at risk", the report added.
Huge barriers to growth, from infrastructure bottlenecks to restrictive labour laws to weak education, will hold India back if not addressed.
"Structural reforms would raise India's economic growth. In their absence, however, growth will remain below the 8 per cent achieved during the previous decade," the OECD said in the 158-page report.
