How Omicron Gave A Blow To The Indian Economy

The record increase in Omicron cases around the world has caused severe disruption, hampering economic growth just as the world is slowly witnessing an economic recovery. The head of the World Health Organization (WHO), Tedros Adhanom Ghebreyesus, recently warned that cases are increasing rapidly worldwide, adding that the new variant of Delta will lead to a “tsunami”. There have been record single-day increases in counties across Europe and the US, and experts believe the Omicron variant will ultimately replace Delta as the dominant variant globally soon.

  It has become apparent that the number of cases of Omicron is increasing fast in India, and many states are announcing new borders to accommodate this new variant, although it is said to be milder than the Delta variant that caused devastation in the second wave.  There is no doubt that the number of daily cases reported in India has risen dramatically in the last few days. 

This will likely increase as some experts have stated that community transmission has already begun. Because of a further increase in cases and partial restrictions, the economic recovery will be met with some disruption. But could the new variant have a serious impact on India’s economic recovery?

IMPACT OF OMICRON ON BUSINESS

 The partial restrictions ahead of New Year’s celebrations will hurt many businesses, especially those engaged in high-contact services such as restaurants, theatres, clubs, markets and shopping malls.

Market associations in Delhi once again see an uncertain future after imposing a peer-to-peer rule following a sharp rise in Covid19 cases in the nation’s capital. Business owners have announced their income will be cut in half due to the new curbs. 

The restrictions came into effect in Delhi after the yellow alert was issued due to the increase in cases. Partial restrictions have been announced in states like Maharashtra, Uttar Pradesh, Punjab, Delhi, Gujarat and more.

 The new restrictions, including a night-time curfew and a ban on gatherings at full capacity, will affect businesses such as theatres, restaurants and other entertainment ahead of important New Year celebrations important.

These companies have been asked to limit occupancy to 50% and some have even been told to close after 5 pm. Simply put, sectors with a high concentration of connections are at risk of short-term damage from rapid growth. While Omicron’s view on the new restrictions is that they will have a minor impact on some businesses, they are unlikely to have a major impact as seen with the first wave of outright lockdowns.

 GDP growth

 The latest figures show that GDP for the July-September quarter was at pre-Covid levels and was 0.3% higher than the corresponding quarter of 2019.20 This is an improvement over the GDP of the first quarter. first. 4,444 GDP from April to June is 9.2% below pre-Covid levels due to the second wave of infections and consequent restrictions on movement and activity imposed by governments.  In the second quarter (July to September), except for construction, commerce, hospitality and transportation and financial services, other sectors recovered and exceeded pre-Covid levels.

 On the demand side, exports and investment were the main drivers, up 17% and 1.5% respectively from pre-pandemic levels. Consumption has yet to increase as it is still 3.5% below pre-pandemic levels.

 

High-Frequency Indicators

 Most high-frequency indicators for October and November point to economic recovery. Manufacturing activity continued to perform well in October and November. The Purchasing Managers’ Index (PMI) for the manufacturing sector posted its biggest improvement in the past ten months. From October to November, the overall figure was 55.9, up from 57.6. It was encouraging that the expansion of the manufacturing sector was supported by a rapid increase in domestic sales. Service activity as measured by the Services PMI  also remained high in October and November, at 58.4 and 58.1 respectively.

 OMICRON MAY CAUSE SHORT DISCRIMINATION

 Key sectors like manufacturing and industrial activity are unlikely to face significant disruption due to new borders and affected sectors could recover sooner if states manage to stem the tide. the new wave of infection.

Experts previously said the new wave of infections caused by the Omicron variant could begin to taper off in February before accelerating rapidly. In such a scenario, the economic impact of the new restrictions would not make a huge dent in terms of economic recovery. For now, fundamental indicators suggest that the economy is recovering steadily despite rising inflation and disruptions in global supply chains. The recovery is expected to continue, but Omicron may slow down a bit in the near term.

RBI ON OMICRON TRIAL

According to the Reserve Bank of India’s second financial stability report, the Omicron variant and rising inflationary pressures continue to pose major challenges for the economy. While the central bank notes that the country’s banks are strong and well prepared to deal with any challenges brought about by the increase in Omicron cases, it cautions that challenges may arise. However, the RBI has indicated that a prolonged disruption due to Omicron could contribute to an increase in bad debts next year. 

As pointed out by the central bank, another major concern is rising inflation, which could be addressed by tougher supply-side measures, especially those that lower the price of food and energy. Shaktikanta Das, Governor of RBI, reaffirmed the central government’s commitment to building a strong and efficient financial system that supports macroeconomic stability, scale, and finance for strong, sustainable and inclusive growth.

Consumer confidence

 While business confidence in India has improved rapidly, consumer confidence is lagging. It may take some time before the surge in investment and business confidence affects jobs and households and consumer confidence improves. Currently, spending increases are visible through higher credit card spending.

 General consumer confidence is enhanced as consumers perceive sustained increases in income and employment prospects. Industry outlook surveys show that perception and expectations of employment are improving.

 With a sustained recovery in investment and hiring activity, consumer confidence should improve in the coming quarters. If Omicron creates additional uncertainty, the speed could be slower. RBI’s Consumer Confidence Survey shows sentiment is not yet at pre-pandemic levels. Results have gradually emerged both from the assessment of the current situation and from the predictions for the future. However, we expect consumer confidence to be slow to recover.

Omicron’s economic recovery is in jeopardy

 India’s near-double-digit growth prospects this year may be threatened by the emergence of the latest Covid strain, Omicron. Most forecasting agencies have revised their growth predictions downwards due to this risk.

 

 India’s GDP is projected to shrink by 8.4% to 8.4% for the current financial year from 8.7%. According to the Asian Development Bank, the country will grow by 9.7% instead of 10%. For emerging Asia, growth forecasts have also been revised down. Stock market sentiment has been dampened by the uncertainty surrounding these forecasts. Emerging situations present a possibility that our vaccines will not be effective. As a result, household consumption may be slower to recover.

 The spike in infections, even likely, could cause restrictions on human movement, potentially hindering the primitive recovery seen in areas like tourism travel, tourism and hotels. If this variant becomes more contagious, more countries could impose new sanctions. These can increase supply-side bottlenecks and logistical challenges, and affect exports.

Edited and Proofread by Ashlyn