Photo: Anthony Azavedo

Structural bottlenecks have increasingly weighed on growth of economic activities in India, according to a recently released report by the Organisation for Economic Cooperation and Development.

The report titled ‘Economic Policy Reforms 2015: Going for Growth’ assessed and compared reform progress across countries and identified new priorities for reviving growth and making growth more inclusive. It said the pace of policy reforms had slowed in most advanced economies after a significant acceleration during the global economic crisis but pointed out that at the same time emerging economies were quickening the pace of reforms.

In case of India, the report said foreign direct investment barriers had been reduced in sectors such as telecom, civil aviation, railways, defence, construction and multi-brand retail. It noted financial reforms were being gradually implemented and the RBI had taken steps to increase competition and efficiency in the banking sector, adding though that more needed to be done for achieving a more efficient allocation of capital.

The report identified several key areas where immediate reforms were essential in order to boost economic growth. It said India’s complex and long administrative and regulatory procedures and rules for acquiring land as well as starting or closing businesses burdened companies, in turn adversely impacting entrepreneurship, investment and growth.

The report sought simplification of the rules and procedures and called for imposing maximum timelines on the regulatory approval processes. For speedier infrastructure development, it suggested monitoring of the land acquisition law and a review in case the law failed to shorten the process of acquiring land. The report also recommended implementation of the single window clearance experiment more widely.

Emphasising the need to undertake wide ranging financial reforms for promoting development of a dynamic and efficient financial sector that supported investment and inclusive growth, the report said bank portfolio restrictions should be eased including by gradually reducing the share of government bonds held by banks and establishing a plan to phase out priority lending. It also wanted the government to allow greater participation by foreign investors in the financial services sector and further promote entry of new private banks.

The report opined that India’s labour laws were complex and stringent, particularly for large industrial firms. These laws, it said, reduced labour market dynamism, contributed to labour market duality and drove many workers including women into informality or out of jobs. Seeking simpler and more flexible labor laws that did not discriminate on the basis of size of enterprise, the report said the provisions requiring government approval to terminate employment contracts needed to be eased.

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