The concern relating to COVID-19 and its impact on the ongoing economic recovery has once again resurfaced in view of the spread of omicron. Curbs in various forms such as reducing the capacity of market/market complexes and night/weekend curfews to check human mobility/contact have already started in several states which are impacting economic activities. India Ratings and Research (Ind-Ra) believes this will have an adverse impact on 4QFY22 GDP. Ind-Ra’s estimate shows that GDP growth in 4QFY22 will now come in at 5.7% yoy, which is 40bp lower than the agency’s earlier estimate of 6.1%. For the entire FY22, the GDP is expected to clock a growth rate of 9.3% yoy, 10bp lower than our earlier estimate of 9.4%.
omicron cases are spreading much faster than earlier COVID 19 variants,
indications so far suggest that the infections are milder and mostly not life
threatening. This also means that the curbs imposed by local/state governments
will be less disruptive than COVID 1.0 and 2.0. Also, the earlier two waves have
made both government and businesses more equipped to deal and be more resilient
in such situations. Ind-Ra therefore believes the impact of COVID 3.0 on the
economy will be lower than COVID 1.0 and 2.0. Once the COVID 3.0 subsides, the economy
is expected to bounce back pretty quickly as was the case after 2.0.
However, this would not have been possible
without the policy support. Policy
support - both monetary and fiscal - would be critical till the threat of
pandemic continues and the economy reaches the stage of a sustained growth
trajectory. Despite the ongoing
recovery, select high frequency indicators such as Index of Industrial
Production are showing that the industrial output levels are still lower than
pre-COVID-19 levels (October 2021 industrial output 99.6% of the pre COVID
level). Against this backdrop, Ind-Ra believes the Reserve Bank of India will
continue to pursue its accommodative policy stance with no change in the policy
rate in the foreseeable future and the union government would not be in a hurry
to get back to the fiscal consolidation path. It will be a gradual process
keeping the unfolding economic scenario in mind.
Additional information is available at www.indiaratings.co.in.
Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.