Coronavirus: Spread of Omicron to reduce GDP growth by 10 basis points in FY22, say India Ratings and Research's estimates

As per India Ratings and Research (Ind-Ra) estimates, rising cases of the Omicron variant of Covid-19 and the subsequent curbs will have an adverse impact on India's Q4FY22 GDP. GDP growth in Q4FY22 will now come in at 5.7 per cent year-on-year (YoY) which is 40 basis points lower than the agency's earlier estimate of 6.1 per cent, as per Ind-Ra, according to IANS report.

The rising cases have led to various curbs instituted by state governments such as reduced capacity of markets, night and weekend curfews to check human mobility. 

What Ind-Ra said?

- "For the entire FY22, the GDP is expected to clock a growth rate of 9.3 per cent YoY, 10 bp lower than our earlier estimate of 9.4 per cent," the agency said.

-Consequently, Ind-Ra said: "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. However, this would not have been possible without the policy support."

-According to the agency, 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. 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," it said.

Omicron

-Although Omicron cases are spreading much faster than the earlier Covid variants, indications, so far, suggest that the infections are milder and mostly not life threatening.

-Resultantly, the curbs imposed by 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.