India is leaving behind the worst financial year in the years of Independence. Since the colonial period, the financial year has run from April 1 to March 31 of the following calendar year.

On March 25 last year, a week before end of the 2019-20 financial year, the government ordered a countrywide lockdown to meet the coronavirus threat. Its full impact was felt in the 2020-21 year which ends this week.

Last September the United Nations Conference on Trade and Development (UNCTAD), in a report on the global impact of the pandemic, forecast that India’s economy will contract by 5.9 per cent of the GDP in 2020 and recover to 3.9 per cent in 2021.

In an update published this month, it estimated that GDP contraction in 2020 was more than anticipated — 6.9 per cent. It expected this year’s recovery also to be more – 5.0 per cent, as against 3.9 per cent anticipated earlier.

UNCTAD’s hope of a stronger recovery took into account a proposed shift in the government’s approach to stimulus packages and an increase in public investment.

The UNCTAD report, titled ‘Out of the frying pan into the fire?’ said the global economy is set to grow by 4.7 per cent this year, faster than the 4.3 per cent predicted six months ago, thanks in part to 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.

It attributed India’s poor performance in 2020 to inadequacies in pandemic relief spending. The relief measures were small in scale and centred on easing supply-side constraints and providing liquidity support rather than on boosting demand, it said.

The curbs on movement of people failed to check the spread of the virus but it severely affected incomes and consumption. This resulted in a greater fall in economic activity than originally envisaged.

In presenting the budget for the current year, Finance Minister Nirmala Sitaraman indicated that the stimulus packages will now aim at raising the demand for goods. She also promised increased public investment, especially in transport infrastructure.

UNCTAD worked out a higher growth rate for India after factoring in the impact of the governmental measures as also a likely rise in exports in the wake of the global economic recovery.    

The US, which contracted by 3.5 per cent in 2020, is forecast to grow by 4.5 per cent this year.

China is projected to record a much higher growth rate of 8.1 per cent. Even if the projected growth of 4.7 per cent is achieved, the pandemic will have knocked over $10 trillion out of the global economy.

UNCTAD said developing countries are feeling the hit of the pandemic more than others. In the absence of reliable official data, the actual impact of the pandemic on the Indian economy is still unclear. But it is not in doubt that the country has averted the risk of a recession.

A hint of the immense damage the pandemic caused has been provided by the US-based Pew Research Centre. It said the pandemic had pushed 32 million Indians out of the middle class. This means India’s consumer market has shrunk by close to 10 per cent. More importantly, it means the gains of decades of anti-poverty effort have been wiped out.

When the revised UNCTAD report was under preparation India appeared to have a firm grip on the Covid-19 situation as the pandemic had passed the peak.

As the number of new cases dropped, India yielded to Brazil the second place in the global chart which it had held for months. Now India is facing a second Covid wave caused mostly by a new strain of the virus.

As local and foreign brands of Covid vaccine manufactured here were shipped to about 150 countries, Prime Minister Narendra Modi had proudly proclaimed India the world’s pharmacy. Reports last week said vaccine exports may be stopped to expand the country’s own immunisation programme, which is the world’s largest. The government denied the report.

But this second wave poses a threat to hopes of a speedy recovery. It needs to be noted that when the pandemic struck India’s economy was already sliding down as a result of some measures like   demonetisation of high-value currency notes without adequate forethought. Unless the government curbs its penchant for impulsive action, the economic recovery plans may run into trouble.