The third wave is expected to slow economic growth in the short term.

Covid Labs in India, Friday 7 January 2022

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India is experiencing a third wave of Covid infections – while its overall impact is expected to be less devastating than previous waves, some economists predict slower growth in the near future.

The economic impact of the new wave may be relatively less severe in the first three months of 2022, Citi economists Samiran Chakraborty and Bakar M. Zaidi wrote in a Jan. 9 note.

But they pointed out that the momentum in India’s economic activity between October and December was lower than expected even before the third wave began.

This prompted Citi economists to revise their inflation-adjusted estimates of India’s GDP for fiscal year 2022. Growth is forecast to ease by 80 basis points from 9.8% year on year to 9% mainly due to weaker economic activity in October. “December quarter,” said Chakraborty and Zaidi.

Consequently, they also revised their growth estimates for FY2023 from 8.7% year-on-year to 8.3%.

Fiscal year 2022 in India ends in March, while Fiscal year 2023 starts on April 1st and ends on March 31st of the following year.

Omicron in India

Covid cases are on the rise again in India with daily numbers in excess of 150,000 in recent days.

Government data showed India reported 247,417 new infections in 24 hours on Thursday, with the daily positivity rate, which measures the proportion of positive tests for Covid-19, at 13.11%.

According to the latest data, more than 1.1 million active cases of infection have been registered in the country.

To date, 5488 cases of Covid infection have been identified in India, caused by a new highly contagious omicron variant first discovered by South African scientists. It is likely that the number of omicron cases in India is much higher than officially reported as it takes time for genetic sequencing to determine if a person with Covid has contracted the new strain.

The predominant strain in India is still delta.

While India’s health infrastructure is relatively better equipped to deal with a third wave, the rapid rise in cases could potentially push it to the brink again.

“Regional disparities in access to medical staff, healthcare facilities, oxygen ventilators and intensive care underscore the need for preemptive measures before the number of patients increases beyond the metro,” said Radhika Rao, senior economist at Singapore’s DBS Group, in a note dated 6 January.

We expect much less economic damage from the current outbreak compared to the first two waves of infections as the economy has become more resilient…

Priyanka Kishore

Oxford Economics

The impact of the third wave could potentially worsen in the coming weeks and months. Thousands of pilgrims are expected to gather along the Ganges River in the eastern state of West Bengal this week for the annual festival. reported by local media.

Last year, a similar large-scale religious gathering was partly responsible for a devastating second wave of infections between February and May.

Economic Impact

While the spike in cases has made economists more cautious in their forecasts for the January-March quarter, they also expect a less severe impact than before.

“We expect much less economic damage from the current outbreak compared to the first two waves of infections as the economy adjusted to be more resilient to Covid-related disruptions,” wrote Priyanka Kishore, head of India and Southeast Asia economics at Oxford. economics. in a note dated January 8.

However, Oxford Economics cut its growth forecast for the January-March quarter by almost 0.5 percentage points to 2.5% quarter-on-quarter to “reflect a third wave of Covid infections,” she said.

The latest surge is expected to lead to another drop in private consumption in India as states tighten restrictions to limit the spread of the virus.

She added that the following April-June should be the start of a “longer recovery” as a large percentage of the population is expected to be fully vaccinated by then.

Citi economists said there is reason to hope for a less devastating wave of Covid. These include: lower hospitalization rates such as what is now being seen in cities like Mumbai is a shorter cycle of the Covid wave, higher vaccination coverage and a loosening of the link between Covid and economic activity.

“Higher vaccination coverage will help policy makers avoid severe restrictions,” they wrote.

India is fully vaccinated almost 70% of the adult population and launched a vaccination campaign for people aged 15 to 18 this year.

Inflationary pressure in India

A crowd of people failing to adhere to social distancing norms amid the Covid-19 pandemic at Juhu Beach on January 2, 2022 in Mumbai, India.

Pratik Horge | Hindustan Times | Getty Images

Supply disruptions could potentially keep inflation at the upper end of the RBI’s target range of 2% to 6% in fiscal 2023, Rao said.

“Hard inflation and global rate adjustments prompt us to maintain our call for a cumulative 50 basis point repo rate adjustment in the second half of the year,” she said.

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