The UN has welcomed India's COVID-19 mega-stimulus package, calling the largest among developing countries, even as it slashed its growth rate for this fiscal year to 1.2 per cent. Development Research Branch chief Hamid Rashid said on Wednesday that the stimulus package "is a very welcome development in terms of ten per cent of GDP (gross domestic product), largest so far in developing countries."

"India has a domestic commercial market and large capacity to implement that large stimulus package," he said at a news conference to release the mid-year World Economic Situation and Prospects (WESP) update.

But he added that its impact would depend on how it is designed.

The package announced on Tuesday by Prime Minister Narendra Modi is valued at Rs 20 lakh crore or about $266 billion.

UN's Chief Economist Elliott Harris said, "The pace and strength of the recovery from the crisis not only hinges on the efficacy of public health measures in slowing the spread of the virus, but also on the ability of countries to protect jobs and incomes, particularly of the most vulnerable members of our societies."

The efficacy of the stimulus packages introduced by various countries would depend on their focus and if they would stimulate the purchasing power of the people.

The 1.2 per cent growth estimate for India for the current fiscal year is a drastic COVID-19-fuelled cut from the 6.6 per cent made in January by the UN Department of Economic and Social Affairs, but it would still be the second-highest growth rate among major economies, trailing only China.

The update expects India's rate of GDP growth to increase to 5.5 per cent in the next fiscal year.

China is expected to grow by 1.7 per cent this year and increase to 7.6 per cent next year.

The world economy ravaged by COVID-19 is projected to shrink by 3.2 per cent this year, with the developed countries bearing the brunt with their economic growth shrinking by 5 per cent.

The update called it "the sharpest contraction since the Great Depression in the 1930s."

The UN update said, "The global economy is expected to lose nearly $8.5 trillion in output over the next two years due to the COVID-19 pandemic, wiping out nearly all gains of the previous four years."

"Nearly 90 per cent of the world economy has been under some form of lockdown, disrupting supply chains, depressing consumer demand and putting millions out of work," it said.

The UN projection for India for the current fiscal year is less than the 1.9 per cent made by the International Monetary Fund (IMF) last month.

Asked about the wide discrepancy between the UN and IMF projections, Hamid said the reason was that the IMF used the purchasing power parity rate while the UN used the market exchange rate.

The PPP rate "gives more weight to developing countries, that shows a slightly higher growth rate than we would have," he said.

"This partially explains the different forecasts, but pretty much IMF forecast and ours have aligned with each other," he said.

The update carried a dire warning that "an estimated 34.3 million people will likely fall below the extreme poverty line in 2020, with 56 per cent of the increase occurring in African countries."

Asked where the rest of the increase in extreme poverty will take place, Hamid said that one of the areas seeing it will be South Asia, with pockets in India and Bangladesh.

The update expects South Asia's economies overall to shrink by 0.6 per cent during the current year.

The report added, "The pandemic will likely put an additional 130 million to the rank of people living in extreme poverty by 2030, dealing a huge blow to global efforts for eradicating extreme poverty and hunger."