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The spread of the new coronavirus variant Omicron will have an adverse impact on fourth quarter (Q4) FY22 GDP of India, as per domestic ratings agency India Ratings and Research (Ind-Ra). Its estimate shows that for the entire FY22, the GDP is expected to clock a growth rate of 9.3 per cent YoY, 10bp lower than its earlier estimate of 9.4 per cent.
GDP growth in 4Q FY22 will now come in at 5.7 per cent YoY, which is 40bp lower than the agency’s earlier estimate of 6.1 per cent.
Although 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 said in a media release.
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.
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 per cent 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,” the release said.
Fibre2Fashion News Desk (KD)
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