OECD “Better Policies”  Series

INDIA

SUSTAINING HIGH AND INCLUSIVE GROWTH

OCTOBER 2012

OECD has issued a report outlining areas that are critical to India’s long-term economic performance and social development: financial sector, competition, regulation, innovation, infrastructure, energy efficiency, green growth, poverty reduction, employment, education and health.

Key OECD Recommendations

•     Strengthen fiscal frameworks through legislative and institutional reforms.

•     Improve spending efficiency, especially on subsidies, by improving targeting and delivery mechanisms.

•     Proceed with the implementation of the GST, minimising exemptions to keep the base as broad as possible while also aiming for a single rate within each state.

•     Implement a revised Direct Tax Code which streamlines collection and reduces the overall burden of direct taxes.
•     Push reforms in the area of international taxation in order to boost investor sentiment and provide a stable and certain tax environment for businesses.

•       Adopt the National Competition Policy, and include an institutional framework that involves the Competition Commission of India in conducting the reviews.

•     Introduce a cross-government training programme on implementing competition assessment.

•     Adopt the revised Company Bill.

•     Implement and enforce the foreign bribery law and continue engagement with the Indian private sector in raising awareness about foreign bribery.

•     Conduct an administrative simplification programme to reduce the burdens and costs on businesses.

•     Create the necessary policies, institutions, and processes to implement a transparent, evidence based regulation-making system using regulator best practice tools.

•      Mitigate risks of waste and corruption in the whole procurement cycle (from project design through the tendering process and to the contract management).

•     Focus efforts to increase public transparency and reinforce public trust.

•     Strengthen the independence of the Lokpal/Ombudsman mechanism.

•    Continue to reduce trade and FDI barriers, especially in goods and services sectors with strong links to the manufacturing sector.

•    Further simplify and improve the transparency of the trade and investment regimes, as well as rationalise the export regime, including export restrictions.

•    Improve conditions and incentives for business R&D and innovation, and move towards a business centred innovation system ;

•    Reform the public R&D system by introducing competitive funding mechanisms, efficiency and relevance-enhancing measures as well as incentives for science-industry cooperation ;

•    Improve framework conditions for innovation, including essentially the provision of highly skilled labour force and the public support for entrepreneurship ;

•    Enhance international openness.

•    Ensure steady increase in investments in R&D and innovation as a share of GDP.

•    Monitor highway PPP contracts in relation to demand risk as economic conditions weaken.

•    Include road safety indicators in developing indicators of welfare to complement GDP.

•    Issue guidelines to ensure safe and adequate space and protected infrastructure for pedestrians, cyclists and public transport.

•    Streamline land titling and improve land record management.

•    Initiate reform of railway accounting and finance to address cross-subsidies.

•    Liberalise the allocation of bank credit.

•    Further open the capital of public-sector banks while allowing new private banks, including foreign ones.

•    Transform rural banks and cooperatives into smaller privately-owned banks free of governmental shareholding and concurrently modernise their regulation.

•    Streamline regulatory arrangements so as to reduce overlaps and compliance costs.

•    Further modernise the financial sector’s legal infrastructure.

•    Improve databases on household creditworthiness.

•    Continue efforts to reduce fossil fuel subsidies to free-up scarce public resources while reducing the incentives for environmentally harmful activities.

•    Evaluate the use of environmentally related taxes and consider carefully whether the tax rates applied reflect environmental damage caused by consumption and production.

•     Continue promoting a balanced expansion of the renewable energy sector.

•    Adopt a comprehensive reform approach to further lower the incidence of poverty and reverse the pattern of growing inequality. This multi-dimensional approach must include education, health care and labour market reforms.

•    Enhance the cost effectiveness properties of the NREGS, by ensuring that the wage is set at a level around the minimum wage.

•    Re-target environmentally-harmful subsidies, to more directly support poor households and increase equity.

•    Tackle regulatory and infrastructure barriers still preventing small towns from realising their potential.

•  Tightly define the benefit package on the grounds of cost-effectiveness.

•  Link additional funding to States to expanding coverage of health care to the poor

•  Contract with the private sector where they can usefully deliver services to those in need

•  Further regulate pharmaceuticals, particularly the supply chain for key drugs and encourage better prescribing behavior

•  Better regulate private health insurance in India’s overall architecture, to make it a better financing option for those with the capacity to pay

•  Continue with current programmes, such as RMSA, that seek to raise participation in secondary education while also improving learning outcomes.

•  Develop a system of assessment to better identify reform priorities and track implementation and progress.

•  Encourage job creation in the formal sector by reducing the administrative burden for dismissal faced by large firms.

•  Couple greater scope for firms to adjust employment levels with greater severance entitlements for dismissed workers and greater provision of reemployment support for dismissed workers.

•  Co-ordinate labour market reforms with measures to strengthen and better target social protection systems, to boost more inclusive growth.

•  Begin to shift public expenditures away from price support and input subsidies towards productivity-enhancing investments that support the long-term competitiveness of the agriculture sector.

•  Improve agriculture innovation systems, including research and development, technology adoption and transfer, education, and farm training and extension services.

•  Develop water resources and irrigation management institutions to improve the sustainable use of water.

•  Improve rural finance by enhancing regulatory oversight, creating an enabling environment for the development of micro finance institutions in rural areas, and strengthening the legal framework for loan recovery.

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