Unlike the first and second waves of the Covid pandemic which called for periodic nationwide shutdowns, the third wave does not appear to require nationwide household lockdowns. Instead, central and state governments can empower regional authorities to request sporadic localized lockdowns only if absolutely necessary. Therefore, their economic impact might not be as severe as during the first two waves of Covid.
“The Omicron mutant of the Covid virus is unlikely to have much impact on India’s economic growth. A small impact in the range of only 5-10 basis points on the country’s GDP, however, cannot be ruled out,” said Anurag Jain, Secretary of the Department for Promotion of Industry and Internal Trade (DPIIT) , Ministry of Trade and Industry, Government of India.
Speaking to reporters, Jain highlighted India’s preparedness for rising new Covid cases and citizens’ awareness of preventive measures, learned over the past two years.
“We are much better prepared to deal with the new wave and can meet demand for up to 19,000 tonnes of oxygen should the need arise. We are reasonably confident. a 10 basis point difference in India’s economic growth, but otherwise we don’t expect a lot of problems from Omicron on our economy,” Jain said.
The economic concern began after India recorded the biggest one-day rise in Covid cases on Thursday. India’s health ministry reported 495 new cases of Omicron, bringing the total number to 2,630 on Thursday. With a cumulative total of 90,928 new Covid-19 infections of all variants, including Delta and Omicron, the total number of cases jumped to 3,51,09,286 on Thursday, according to ministry data.
Echoing a similar response, Madan Sabnavis, Chief Economist, Bank of Baroda, told Polymerupdate: “Sectors like hospitality, tourism, post, entertainment and aviation will definitely be affected. Industrial production is expected to be affected in the fourth quarter by services, with a secondary impact on the manufacturing sector as spending slows. India may see its economic growth impacted by 10 to 20 basis points on this score.
Meanwhile, the government is closely monitoring the ongoing development with a sudden increase in new Covid cases.
The Indian economy has again entered a minor downturn mode since the first case of Omicron was detected in the first week of December 2021. Extremely high volatility was seen in Indian stock markets, the Benchmark Sensex registering a daily movement of 1-2% either side, blaming the new Omicron variant of the Covid virus.
Additionally, the growth of Indian service companies has slowed, which is reflected in the Purchasing Managers Index (PMI). According to the monthly IHS Markit India Services, the PMI index stood at 55.5 points in December, against 58.1 points in November. In business parlance, an impression above 50 signifies expansion, while a score below this threshold indicates contraction.
One school of thought, however, believes that India’s economy has continued to grow, albeit at a slow pace. GST collections, an indicator of consumption, were robust at around 1.3 lakh crore in December. This is heartening as it indicates that people are spending despite the uncertainties related to the new Covid variant. In December, self-registration (PV) and power consumption jumped.
Other than that, the high energy consumption is encouraging as it is an indicator of overall economic activity. Concerns about high input costs, inflationary pressures and surging Covid cases led to a moderation in manufacturing activity in December.
Another indicator of strong economic growth, foreign trade performance was impressive in December, with India’s merchandise exports registering a 37% year-on-year increase, the highest monthly performance on record. Imports also increased by 38%, reflecting improved domestic demand conditions. Total bank credit (as of December 17) grew 7.3% year-on-year, the fastest pace in 25 months. Capital market figures (debt and equity issuance) moderated slightly in December, while the unemployment rate at 7.9% (according to the CMIE survey) was higher than the previous month.
“It remains to be seen whether the consumer momentum will hold up in the coming months amid renewed concerns around the third wave of Covid. The manufacturing and services sectors are already showing some signs of unease amid concerns over the spread of the new variant of Covid-19 and associated restrictions Much in the future will depend on the severity of the new virus strain and the extent of restrictions imposed to control its spread,” said Kavita Chako, Senior Economist , CareEdge.
Aditi Nayar, Chief Economist, Icra Ltd, told Polymerupdate: “Many high-frequency indicators had shown a year-over-year flattening in November 2021, with post-holiday season loosening and supply disruptions caused by heavy rains in southern India. While most available indicators showed some rebound in December 2021, the pace of growth for the majority of indicators is tracking levels seen in October 2021. We forecast India’s gross domestic product (GDP) growth of 6 to 6.5% in October-December. 2021.”
Nair predicts that the impact of the Omicron variant will remain limited to a quarter in terms of the duration of the outbreak of new cases, as well as economic impact, given better preparedness of governments, the health system and households.
With the recent rise in Covid-19 cases and widening restrictions leading to heightened uncertainty, it is increasingly unlikely that the Monetary Policy Committee (MPC) and RBI will begin policy normalization in February 2022 itself. unless inflation provides an extremely negative surprise.
DILIP KUMAR JAI
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