India's Covid-19 stimulus fell short of initial announcements leading to a lower than expected economic performance in 2020, says a new analysis by United Nations Conference on Trade and Development (UNCTAD). In its Trade and Development 2020 update released on March 18, the UN agency 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.
The report said the deeper-than-expected downturn in 2020 explains in part India's stronger recovery projected for 2021. UNCTAD expects India's GDP to fall by 6.9 percent in 2020 and grow by 5 percent in 2021.
"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. An anticipated recovery in global demand will also help buoy the export sector through 2021," it said.
The report said that India's actual fiscal stimulus fell short of initial announcements that suggested a large increase of public spending for pandemic relief. It said India's restrictions to people's movement not only severely affected incomes and consumption, but also proved largely unsuccessful in containing the spread of the virus. This, according to UNCTAD resulted in a fall in economic activity that was larger than the agency had envisaged in mid-2020.
The agency said the global economy is expected to grow by 4.7 percent this year, faster than predicted in September (4.3 percent), partially because of a stronger recovery in the United States, 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, the report said.
The Trade and Development Report update titled "Out of the frying pan ...Into the fire" also states that 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. While all regions will see a turnaround this year, potential downside health and economic risks could still produce slippages, it cautions.