Home / Economy / Omicron spread to reduce GDP growth by 10bp in FY22: Ind-Ra
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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 begun to impact economic activities posing an adverse impact on 4QFY22 GDP, India Ratings and Research (Ind-Ra) said on Thursday.

As per the ratings agency estimates, 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%.

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 that due to this, 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, it added in its analysis of the current developments.

The agency said that 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 the 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, an Ind-Ra assessment suggests that 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, it said.

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