Economic outlook gets cloudier again as third Covid wave hits India


by 5paisa Research Team Last Updated: Jan 11, 2022, 03:11 PM IST

India is in the throes of a third wave of the Covid-19 pandemic, and it could again singe economic growth, say experts.

The country reported more than 58,000 new cases on Wednesday, the highest level since June last year. More worryingly, the number of daily cases has jumped almost six times in less than 10 days.

As infections and hospitalisation increases, many states have re-introduced several restrictions such as a night curfew and work from home. This, say experts, could dent India’s fourth-quarter growth by as much as 30 basis points.

Citing several economists, a report in The Economic Times says many experts expect contact-intensive services such as travel, tourism, hotels and restaurants, which were finally beginning to recover, to bear the brunt of the third wave.

The National Statistics Office (NSO) will release the first advance estimate for GDP for 2021-22 on January 7. The Indian economy had grown 8.4% in the second quarter of 2021-22 while data for the third quarter, which ended on December 31, will be released at the end of February.

What do estimates by the country’s central bank say?

The Reserve Bank of India (RBI) expects India's economy to grow 6% in the ongoing quarter and 9.5% for FY22.

In its second financial stability report, the RBI said the Omicron variant remains a major challenge for the economy along with rising inflationary pressure.

However, the central bank noted that banks in the country were strongly positioned to face any challenges that might arise due to surging Omicron cases. But the RBI indicated that prolonged disruption due to Omicron could lead to a spike in bad loans next year.

Another major concern highlighted by the central bank is rising inflation, which can be countered by stronger supply-side measures, especially to contain food and energy prices.

RBI Governor Shaktikanta Das reiterated that the central government was committed to ensuring a robust financial system that supported strong, sustainable and inclusive growth with macroeconomic and financial stability.

What do other economists and experts feel?

“There is a downside risk to our growth forecast to the tune of 20-30 bps (current forecast of 6.1% Q4 FY22),” HDFC Bank chief economist Abheek Barua said in a note.

Barua attributed the downside risks to restrictions imposed by states that could extend beyond January and a slowdown in global recovery that would weigh on exports.

Barclays chief India economist Rahul Bajoria said, “It poses downside risks to our forecast of 10% for FY21-22, but the RBI is already at 9.5%, which still seems reasonable."

Axis Bank has lowered its growth forecast for FY22 to 9.2% from 9.5% projected earlier, factoring in a downside bias to growth despite strong exports. India’s goods exports rose 37% in December from a year ago to $37.29 billion, a monthly record, while imports increased to a high of $59.27 billion, an increase of 38.1% over last year.

Citing an unnamed economist at an auto conglomerate, the ET report also says that a 75-100 bps fall in Q4 GDP is likely as medical infrastructure gets overwhelmed going ahead and movement restrictions impact services.

But will all sectors be equally hurt?

Not really. A report by India Today says that key areas such as manufacturing and industrial activity are unlikely to face any significant disruption due to the fresh curbs, and the affected sectors may bounce back sooner if states succeed in limiting the fresh wave of infections.

Moreover, the report says that at present, core indicators suggest that the economy is recovering steadily despite rising inflation and global supply chain disruptions. The recovery is likely to continue, but Omicron may slow down the pace slightly over the near term.

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