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Updated on: Friday, January 07, 2022, 09:17 AM IST

Spread of Omicron to reduce GDP growth by 10 basis points in FY22: India Ratings

India Ratings' estimate shows that GDP growth in 4QFY22 will now come in at 5.7 per cent YoY, which is 40bp lower than the agency’s earlier estimate of 6.1 per cent.
For the entire FY22, the GDP is expected to clock a growth rate of 9.3 per cent YoY, 10bp lower than our earlier estimate of 9.4 per cent. |

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

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India Ratings and Research.stated that 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, stated India Ratings and Research.

The rating agency believes this will have an adverse impact on 4QFY22 GDP. Ind-Ra’s estimate shows that GDP growth in 4QFY22 will now come in at 5.7 per cent YoY, which is 40 bp lower than the agency’s earlier estimate of 6.1 per cent.

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.

Curbs in various forms such as reducing the capacity of market/market complexes and night/weekend curfews to check human mobility/contact have already started in several states which are impacting economic activities.

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-19 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.

The agency believes the impact of COVID-19 3.0 on the economy will be lower than COVID-19 1.0 and 2.0. Once the COVID-19 3.0 subsides, the economy is expected to bounce back pretty quickly as was the case after 2.0.

"However, this would not have been possible without the policy support. 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 (October 2021 industrial output 99.6% of the pre COVID-19 level)," the agency said.

The rating agency 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.

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Published on: Friday, January 07, 2022, 09:19 AM IST
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