The United Nations Conference on Trade and Development (UNCTAD) on Thursday slashed India’s growth forecast for 2022 to 4.6% from 6.7% projected earlier.

The downgrade is attributed to the Russia-Ukraine war with New Delhi expected to face restraints on energy access and prices, reflexes from trade sanctions, food inflation tightening policies and financial instability.

“India in particular will face restraints on several fronts: energy access and prices, primary commodity bottlenecks, reflexes from trade sanctions, food inflation, tightening policies and financial instability,” UNCTAD said in its update to the Trade and Development Report.

The Geneva-based organisation also downgraded its global economic growth projection for 2022 to 2.6% from 3.6% due to shocks from the war and changes in macroeconomic policies that put developing countries particularly at risk.

While Russia will experience a deep recession this year, significant slowdowns in growth are expected in parts of Western Europe and Central, South and South-East Asia, according to the report.

The ongoing war in Ukraine is likely to reinforce the monetary tightening trend in advanced countries following similar moves that began in late 2021 in several developing countries due to inflationary pressures, with expenditure cuts also anticipated in upcoming budgets, it said.

The agency cautioned that a combination of weakening global demand, insufficient policy coordination at the international level and elevated debt levels from the pandemic will generate financial shockwaves that can push some developing countries into a downward spiral of insolvency, recession and arrested development.

Policy recommendations

UNCTAD recommended greater, more concessional and less conditional, multilateral financial support for developing countries to enable them to withstand financial and economic shocks and increase investment to support economic growth.

“More use of Special Drawing Rights to supplement official reserves and to provide liquidity on a timely basis to avoid severe deflationary adjustments,” it said in the report.

Besides more effective and less ad hoc swap arrangements between central banks to support developing country currencies and address financial crises, UNCTAD suggested sector-specific policies including price controls and subsidies, to tackle the supply-side and mark-up pressures on inflation.