On June 10, Organisation for Economic Cooperation and Development (OECD) released its Economic Outlook in which it said that India’s GDP is likely to slump by 3.7 per cent and added that the growth could further go down by up to 7.3 per cent in event of a second COVID outbreak. Previously, OECD has projected GDP growth of 5.1 per cent in its interim Economic Outlook in March for FY21.
On recovery, the latest EO report says that there can be a strong recovery in the coming fiscal to 7.9 per cent in the ‘single-hit’ scenario and an 8.1 per cent in case of ‘double-hit’ scenario. The report said, “History reveals that India tends to undertake structural reforms best during severe crises; new measures could be announced to unlock the growth potential and job creation, on top of those announced in May for the agricultural and industrial sectors”.
OECD’s India Economist, Isabelle Joumard said, “Cuts in policy rates and other measures to promote liquidity provision have been timely”. But suggested that RBI’s stance should remain supportive as low ‘economic slack and oil prices’ would keep inflation low. With this Joumard also said, “Simulations carried out at the OECD suggest that bringing the personal income tax schedule more into line with other emerging market economies and abolishing tax expenditures would raise personal income tax revenue by at least 50%.
She added,” Analysis in the latest OECD Economic Survey of India suggests that India would be the single largest beneficiary of a multilateral cut in service trade restrictions. Were India to reduce unilaterally restrictions on services trade, there will still be benefits in terms of India’s income and manufacturing jobs”.
EO forecast figures are based on consideration of pandemic as well as deteriorating balance sheets of government, corporates and banks that have increased the financial market instability. The report says that the risk factors would keep investment rates low and thus affecting the growth prospects.
On Fiscal deficit for FY21, the report suggested that it can be between 8.2 per cent and 8.9 per cent on the consideration of factors such as dwindling tax revenue, the need to bail out financial institutions and firms, and lower-than-budgeted privatisation proceeds.
The report forecasted Global GDP to go down by 6 per cent which can further contract to 7.6 per cent in the event of second COVID outbreak. The editorial by OECD’s Chief Economist Laurence Boon said, “By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments”.
According to the report, global economic rebound for next year is likely to be 5.2 per cent and just 2.8 per cent in the event of second COVID outbreak.