Due to the impact of the COVID-19 pandemic, the United Nations estimates that the Indian economy will contract by 5.9% in 2020 while warning that the growth will rebound next year, but the contraction will mostly translate into a permanent income loss. The UN Conference on Trade and Development (UNCTAD) presented its Trade and Development Report 2020 on Tuesday and expressed concerns over the deep recession going on in the world amidst rising coronavirus infections.
The contraction in the global economy
The UN report said that the global economy will also contract by approximately 4.3% in 2020, creating a shortage of over USD 6 trillion than what economists had estimated before the spread of coronavirus. The report discussed the economic state in a distressed voice, reading, “In short, the world is grappling with the equivalent of a complete wipeout of the Brazilian, Indian and Mexican economies. And as domestic activity contracts, so goes the international economy; trade will shrink by around one-fifth this year, foreign direct investment flows by up to 40 per cent and remittances will drop by over USD 100 billion.”
The South Asian economy is also expected to shrink by 4.8% in 2020 and recover to 3.9% in 2021. Similarly, the GDP of the US is expected to fall by 5.4% in 2020 and recover by 2.8% in 2021. China will register economic growth of 1.3% this year and a massive 8.1% increase in 2021.
Estimates concerning India
The report said, “In the case of India, the baseline scenario is a sharp recession in 2020 as strict lockdown measures to stem the virus’ spread brought many productive activities to a halt across the country.” The report also said that UNCTAD expects a rebound in India’s GDP growth in 2021 along with an increasing economy in the coming years but, “the contraction registered in 2020 is likely to translate into a permanent income loss”. The UN trade agency said, “This year is shaping up to be a very difficult year for the global economy. With many countries unprepared to respond to a health pandemic, lockdown seemed to be the only plausible way to protect lives and preserve health systems. Doing so triggered an economic crisis that spread as quickly as the virus itself.” Data for the first two quarters are indicating a sharper contraction than 2008-2009 and most estimates for the year point towards a general global recession, like the Great Depression of the 1930s.
Will 2021 be better than in 2020?
While 2021 is likely to bring a rebound, it will not be as uniform as the recession across all countries. Uncertainties will prevail over most emerging nations, with the lingering threat of bankruptcy, weak supply chains, low confidence in the market and poor demand. The report said, “Debt levels across the world, in both the public and private sectors, will have risen significantly from the historically high levels registered before the crisis. In this condition, the wrong policy steps – and ignoring the experience of the last decade – could trigger further shocks which would not only derail recovery but could usher in a lost decade.”
The biggest fall in output will be in the developed world where some countries can even register a double-digit decline. “But the greatest economic and social damage will be in the developing world, where levels of informality are high, commodities and tourism major sources of foreign exchange, and fiscal space has been squeezed under a mountain of debt,” it said. UNCTAD Secretary-General Mukhisa Kituyi said, “The lives of future generations, indeed of the planet itself, will depend on the choices we all take over the coming months.”
- Also read: Rebooting Indian Economy through INR. 20 Lakh Crore Economic Package with the strategy of Self Sustained Secured Governance
Recommendation by the Policy Times
- 90-120 million people will be pushed into extreme poverty in the developed countries, leaving over 300 million facing food insecurity across the world. Quick action plan of recovery needs to be made.
- The recovery plan should be comprehensive and bold, with proper ideas to create jobs and increase wages.
- Big public investments should focus on healthcare facilities, cleaner energy, environmental protection, sustainable transport systems and a robust economy.
- If the debt distress continues over the countries, the income gap will further increase.