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Wednesday, January 19, 2022

Sharp surge in Omicron cases renews economic uncertainty

🔴 Though the economic impact appears to have lessened with each subsequent surge in infections as businesses and consumers have been able to adapt better, in the past, services have been severely impacted.

By: Editorial |
Updated: January 8, 2022 8:24:37 am
GDP growth, Indian economy, Omicron cases, National Statistical Office, economic uncertainty, Indian express, Opinion, Editorial, Current AffairsThe rapid spread of Omicron has undoubtedly created considerable uncertainty on the economic front.

According to the first advance estimates released by the National Statistical Office on Friday, the Indian economy is expected to grow at 9.2 per cent in 2021-22. Considering that the economy grew just shy of 14 per cent in the first half of the year, these estimates translate to a growth of around 5.6 per cent in the second half. This is lower than the RBI’s estimates which, in the December monetary policy committee meeting, had projected real GDP growth at 9.5 per cent for the full year, comprising 6.6 per cent in the third quarter, and 6 per cent in the fourth quarter. In nominal terms, though, as per the NSO’s estimates, the economy is expected to grow at 17.6 per cent this financial year. This number assumes significance as it will form the basis of the 2022-23 Union budget estimates which will be tabled in Parliament a few weeks from now.

The advance estimates confirm that by the end of 2021-22, the Indian economy would have just about managed to reach its 2019-20 level (real terms), growing by just 1.3 per cent. The disaggregated data shows that most sectors are expected to recover to their pre-Covid levels. However, trade, hotels, transport and communication, which have been badly hit by the pandemic, continue to struggle. While the growth numbers for the full year are aided by the low base effect, for sectors such as manufacturing, construction, financial, real estate and professional services, the implied estimates for the second half of the year are not very encouraging. These numbers also suggest that both private consumption and investment activity are likely to remain subdued in the second half of the year.

As the first advance estimates are based only on seven to nine months of data, they will be revised in the months to come when more data becomes available. While this injects a degree of uncertainty in the estimates, this year the surge in Omicron cases, and the consequent economic impact which will play out in the fourth quarter (January-March), will only compound the problem. The rapid spread of Omicron has undoubtedly created considerable uncertainty on the economic front. With state governments beginning to impose restrictions — some have imposed night/weekend curfews, as well as curbs on contact intensive services — to what extent this wave of infections will impact the economy will only be evident in the weeks and months ahead. Though the economic impact appears to have lessened with each subsequent surge in infections as businesses and consumers have been able to adapt better, in the past, services have been severely impacted. Analysts have already begun to pare down their growth estimates, but, considering the uncertainty, considerable variation persists in assessments of the economic impact of the third wave.

This editorial first appeared in the print edition on January 7, 2022 under the title ‘A hesitant recovery’.

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