Top UN economic experts have hailed as impressive the Rs 20 lakh crore stimulus package, the largest so far among developing countries, announced by India to revive the country’s economy, which has been severely hit by the coronavirus-triggered lockdown.
Prime Minister Narendra Modi on Tuesday announced massive new financial incentives on top of the previously announced packages for a combined stimulus of Rs 20 lakh crore (USD 260 billion).
While launching the World Economic Situation and Prospect (WESP) report update on Wednesday, Chief of the Global Economic Monitoring Branch Hamid Rashid told reporters in response to a question that the stimulus package announced by the Indian government on Tuesday is a very welcome development.
He said the Rs 20 lakh crore package, which is 10 per cent of India’s GDP is the largest so far in the developing countries because most developing countries have been rolling out stimulus packages that are between 0.5 per cent and 1 per cent of the GDP.
India’s stimulus packages are very large. And also India has the domestic financial market and the large capacity to implement that large stimulus package, he said, adding that impact of the package would depend on the design of the stimulus.
The mega Rs 20 lakh crore stimulus package includes previously announced measures to save the lockdown-battered economy and focuses on tax breaks for small businesses as well as incentives for domestic manufacturing.
The combined package works out to roughly 10 per cent of the GDP, making it among the most substantial in the world after the financial packages announced by the US, which is 13 per cent of its GDP, and by Japan, which is over 21 per cent of its GDP.
Associate Economic Affairs Officer, Economic Analysis and Policy Division, Department of Economic and Social Affairs (EAPD/UN DESA) Julian Slotman told PTI in an interview that the size of India’s stimulus package is impressive and seems to be of a magnitude that will help to reassure markets and to boost domestic consumption.
But at the same time when people are simply not able to spend, you cannot expect the economic growth to suddenly magically re-appear.
Lauding the Indian government for implementing a strict lockdown while the number of COVID19 cases was relatively low, he said at some point it will be inevitable to gradually ease the restrictions but warned that that could result in infections increasing in the country.
Fortunately in India, the central government acted very decisively in implementing the national lockdown” when the number of virus cases was relatively low and “it seems to have slowed the spread of the disease somewhat, he said.
The decisive containment measures are absolutely critically necessary and a strong lockdown is critical in India, he said, adding that the duration of the lockdown has to also be economically feasible.
It is putting tremendous pressure on the Indian economy and of course disproportionately hurting the people that are the most vulnerable and poor.
He said that in India, priority must be given to reduce uncertainty first so that people can eventually go out and spend again.
He urged the Indian government to exercise maximum caution in easing the lockdown, saying the country should not hasten anything unnecessarily. There are ways to gradually lift restrictions, he said.
He added that with a large informal sector in India, the lockdown has disproportionately affected women and migrant workers.
Meanwhile, the UN on Wednesday slashed India’s projected GDP growth rate to 1.2 per cent in 2020-21 as the COVID19 pandemic ravages the global economy.
In the WESP report update, the UN DESA said that global GDP is forecast to contract sharply by 3.2 per cent as the COVID-19 pandemic paralyses the world, sharply restricting economic activities, increasing uncertainties and unleashing a recession unseen since the Great Depression.
“Cumulatively, the world economy is expected to lose nearly USD 8.5 trillion in output in 2020 and 2021, nearly wiping out the cumulative output gains of the previous four years, the report said.
India’s economic growth is forecast to slow to 1.2 per cent in the current fiscal, a further deterioration from the already slowed growth of 4.1 per cent in 2019. India, which grew at 6.8 per cent in the fiscal year 2018, is forecast to recover and clock a 5.5 per cent growth rate in 2021.
The Economic Survey, released a day before Finance Minister Nirmala Sitharaman presented the Union Budget for 2020-21 on February 1, had projected a GDP growth of 6-6.5 per cent, up from 5 per cent estimate for 2019-20.
The national lockdown in India, for example, is expected to depress economic growth to just 1.2 per cent, much lower than the already disappointing growth in 2019, the report said.
Despite the considerably slowed growth rate of 1.2 per cent, India is still the second fastest-growing major economy in the world after China.
According to estimates in the report, India and China are the only two economies in the world that are not projected to shrink in 2020 even though their growth rates slow down considerably. While India could clock a 1.2 per cent GDP growth, China is estimated to record a 1.7 per cent growth rate.
All other economies in the world, including the US (-4.8 per cent), Japan (-4.2 per cent), European Union (-5.5 per cent) and the United Kingdom (-5.4 per cent) are projected to shrink this year.