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[NEW DELHI] India's economy is coming out of its worst slowdown in a quarter-century, but needs major structural reforms if it is to return to pre-2011 growth levels, the OECD said Wednesday.
The OECD said in its India Economic Survey that annual growth should top 6.5 per cent in the coming years, but reducing barriers to manufacturing growth was "critical".
India's growth has languished at below five percent for the last two financial years, hit by high interest rates, stubborn inflation and weak investment.
The OECD report called for a "simpler and more flexible labour law, covering more workers, coupled with better education and training programmes".
India's economy grew by 4.7 per cent in the last fiscal year to March 2014 and the central bank projects 5.5 per cent expansion this year.
"Structural reforms would raise India"s economic growth," the report said.
"In their absence, however, growth will remain below the eight-per-cent growth achieved during the previous decade." Economist say India needs near double-digit economic growth to generate jobs to employ millions of young people who join the job market each year.
New right-wing Prime Minister Narendra Modi, whose Hindu nationalist Bharatiya Janata Party government was elected to power in May, has already taken some action to chop away at India's thicket of regulations, seen by economists as discouraging crucial investment.
But the report said the government needed to do more to simplify the country's infamous bureaucratic red tape to speed up commissioning of industrial projects and other investment.
It must also improve governance to crack down on widespread corruption, the report said.
Still high inflation, a wide fiscal deficit, large energy and fertiliser subsidies and delays in passing key tax reforms to make doing business easier and cheaper in India are among other brakes on economic growth, the OECD said.
Public investment in physical infrastructure such as roads and social institutions such as hospitals and schools are vital to boosting economic expansion and reducing inequalities, the report added.
The Paris-based Organisation for Economic Cooperation and Development provides economic analysis and advice to its industrialised country members.