A cashier counts Indian rupee bank notes. | Photographer: Dhiraj Singh | Bloomberg
Representational Image | Photo: Dhiraj Singh | Bloomberg
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New Delhi: A combination of fiscal stimulus and financial sector reforms, boosting investment and consumption, is expected to “support a recovery” in India’s economic growth to 6.6 per cent in 2020-21, a United Nations (UN) report said.

According to the World Economic Situation and Prospects (WESP) report, the Indian economy is also expected to grow at 5.7 per cent in the current 2019-20 fiscal. This is higher than the Narendra Modi government’s estimates of an 11-year-low growth of 5 per cent in 2019-20.

Speaking at the launch of the report Friday, Nagesh Kumar, head, UN Economic and Social Commission for Asia and the Pacific, stressed the need for “continued structural reforms” to bring India’s growth back to its previous level. He said country has committed to an ambitious fiscal expansion to complement its loose monetary policy.

“Heavy reliance on monetary policy has its limits. We should look at a balanced mix of both monetary and fiscal policy,” Kumar said.

Asked which sectors will propel India’s growth, Kumar said, “Infrastructure and education are the sectors that can never be over-emphasised. Further, there is also a need to invest in young people.”

He added that credit crunch is affecting demand currently. “Demand crunch is also very serious. It is a chicken and egg situation.”

WESP is the UN’s flagship annual publication which reports on the expected trends in the global economy.

South Asia’s prospects

According to WESP 2020, economic growth in South Asia is expected to rebound to 5.1 per cent in 2020 after it fell to a decade-low of 3.3 per cent in 2019.

Citing a combination of “external headwinds”, falling trade and domestic challenges as reasons for last year’s slowdown, the report said economic activity is expected to recover in most countries after effects of “one-off shocks wane” and governments introduce fiscal expansion.

Nagesh Kumar also shed light on the economic prospects of India’s neighbours.

Pakistan’s economy — currently struggling with “twin deficits” with a projected growth of 3.3 per cent in 2019-20 — is also expected to recover from 2021-22 onwards amid government reforms.

Calling Bangladesh the fastest growing economy in South Asia, Kumar said its growth has improved to 8.1 per cent in the current fiscal. “In fact, it has benefited the most from the US-China trade war,” added Kumar.

Risks

While overall growth is expected to rebound, the South Asian region will keep facing “daunting” challenges to sustainable development, the WESP 2020 said.

It further warned that a “flareup of trade tensions”, “financial turmoil” or an “escalation of geopolitical tensions” could potentially challenge the economic recovery in the region.

South Asia has been exposed to “external shocks” such as trade and climate change. This is due to insufficient climate-resilient infrastructure and the lack of “economic diversification”, it said.

At the press meet, Kumar said some of the structural challenges include low quality of employment and gender barriers in the labour market. He urged policymakers to address these issues urgently.


Also read: Inflation at 7.3% and growth at 5% — is Indian economy facing stagflation?


 

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