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India’s Covid-19 stimulus didn’t support demand, relief measures smaller in scale: UNCTAD

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The United Nations Conference on Trade and Development (UNCTAD) on Thursday said India’s Covid-19 stimulus fell short of initial announcements leading to a lower than expected economic performance in 2020.

In its Trade and Development 2020 update, it said the relief measures adopted by India were not only much smaller in scale, but also centered on easing supply side constraints and providing liquidity support rather than aggregate demand support. UNCTAD expects India’s GDP to contract 6.9% in 2020 and grow 5% in 2021 attributing the stronger recovery projected for 2021 to the deeper-than-expected downturn in 2020.

“Moreover, restrictions to people’s movement not only severely affected incomes and consumption, they also proved largely unsuccessful in containing the spread of the virus,” the UN agency said in its report titled “Out of the frying pan … into the fire”.

As a result, it said, the fall in economic activity proved to be larger than it had envisaged in mid-2020.

“The budget for the fiscal year from April 2021 to March 2022 also points to a shift towards demand-side stimulus, with an uptick in public investment (particularly in transport infrastructure) for the coming fiscal year,” it said, added that an anticipated recovery in global demand will also help buoy the export sector through 2021.

UNCTAD said the forecasts made by the Trade and Development Report (TDR) for 2020 proved generally correct, with East Asia and Latin America doing a little better than expected but Europe, India and South Africa doing worse.

Global economy

UNCTAD said for the global economy, the overall cost of the crisis has been exorbitant with the brunt of the hit to the global economy is being felt in developing countries with limited fiscal space, tightening balance of payments constraints and inadequate international support. Moreover, while all regions will see a turnaround this year, potential downside health and economic risks could still produce slippages

The global economy is expected to grow 4.7% this year, faster than predicted in September (4.3%) due to a stronger recovery in the US where progress in distributing vaccines and a fresh fiscal stimulus of $1.9 trillion are expected to boost consumer spending.

However, this will still leave the global economy over $10 trillion short of where it could have been by the end of 2021 if it had stayed on the pre-pandemic trend and with persistent worries about the reality behind the rhetoric of a more resilient future.

“We now expect a 4.7% expansion, 0.6 percentage points better than our previous forecast,” UNCTAD said for 2021, hinging the more optimistic scenario on three assumptions- improved vaccination and disease containment in advanced and middle-income countries; a speedy transition from economic relief policies to recovery-policies in the largest economies of the world; and no financial crash of global significance.

As per the report, the loss of global output in 2020 with respect to the pre-pandemic trend meant destruction of income on an unprecedented scale, an estimated $5.8 trillion and with already vulnerable parts of the population bearing the brunt, at a time when better income distribution had become most urgent.

Global Gross domestic product shrank 3.9% in 2020.

“This loss will persist as even the most optimistic projections for the bounce back of growth will not cover the shortfall of income for several years,” the UN agency said and added that since global output growth is expected to slow down after 2021, particularly in the advanced economies, unless there is a determined shift in policy direction, the world economy will take more than a decade to catch up with its pre-pandemic trend.



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