The Indian economy is expected to grow at 7.2 per cent in 2021 but growth could slow down next year, according to the UNCTAD Trade and Development Report 2021.
It said the recovery is constrained by ongoing human and economic cost of Covid-19 pandemic and negative impact of food price inflation on private consumption.
The report said India, which experienced a contraction of 7 per cent in 2020, showed a strong quarterly growth of 1.9 per cent growth in the first quarter 2021 on the back of the momentum of the second half of 2020 and supported by government spending in goods and services.
Meanwhile, a severe and broadly unanticipated second wave of the pandemic, compounded by bottlenecks in the vaccine roll out, hit the country in the second quarter on top of rising food and general price inflation, forcing widespread lockdowns and drastic consumption and investment adjustments.
"Income and wealth inequalities have widened, and social unrest has increased.
"The central bank estimates another sharp contraction (quarter-on-quarter) in the second quarter followed by a rebound afterwards."
Given the inherent fragilities in coping with the pandemic and restoring employment and incomes, growth in 2021 as a whole is estimated at 7.2 per cent, insufficient to regain the pre-Covid-19 income level, said the report.
"Going forward, assuming away a resurgence of the pandemic to the degree experienced in the second wave, a revitalisation of private sector activity, subject still to a slow recovery of jobs, is likely to be matched with a more adverse policy environment, especially on the fiscal front, and with continuing pressures on the trade balance."
It added: "On these conditions, the economy is expected to decelerate to 6.7 per cent growth in 2022."
Meanwhile, South Asia suffered a sharp contraction of 5.6 per cent in 2020, with the region's economic activity brought to a halt thanks to widespread restrictions.
Deficient public healthcare systems and high levels of informality magnified the impact of the pandemic in terms of both health and economic outcomes, which was reflected in a stark rise in poverty rates.
UNCTAD expects the region to expand by 5.8 per cent in 2021, with the more vigorous recovery signalled at the beginning of the year muted by a rapid surge in infections during the second quarter of 2021.
Moreover, the limited progress made in terms of vaccine rollouts continues to leave the countries of the region susceptible to future outbreaks.
For 2022, UNCTAD expects the region's growth rate to moderate to 5.7 per cent.
At the same time, global growth is expected to hit 5.3 per cent this year, the fastest in almost half a century, with some countries restoring (or even surpassing) their output level of 2019 by the end of 2021.
The global picture beyond 2021, however, remains shrouded in uncertainty.