With Omicron variant of coronavirus fast spreading in the country, ICRA Limited. expects that India’s GDP growth for Q4 FY22 would be 40 basis points (bps) below its earlier projection of 5 and 5.5%. “Now it is expected to be sub 5% for the quarter,” Aditi Nayar, chief economist, ICRA Ltd. said.
With this, there would be a modest downside of 10 basis points (bps) from its earlier projections of 9% in the GDP forecast of FY2022.
The RBI in December had retained its real GDP growth projection at 9.5% for FY22 with 6.6% in Q3 and 6% in Q4 of FY22.
“Our early analysis suggests that the impact of an Omicron wave May be limited to one quarter in terms of the duration of the surge in fresh cases, as well as the economic impact given the better preparedness of governments, the health care system and households,” Ms. Nayar said.
“However, there continues to be a lot of uncertainty around this. The impact on GDP growth will depend on the extent to which restrictions need to be extended across States in the coming weeks. As of now, we see a modest downside [10 bps] to our forecast of FY2022 GDP expansion of 9.0%,” she said.
She said the GDP growth for Q3 of FY22 would be between 6 to 6.5%, unchanged from earlier forecast.
“Many high frequency indicators had displayed a YoY flattening in November 2021, with slack emerging post the festive season and supply disruptions caused by heavy rainfall in Southern India,” she said.
“While most of the available indicators have displayed some rebound in December 2021, the pace of growth of the majority of them trails the levels seen in October 2021. We expect GDP growth of 6.0-6.5% in Q3 FY2022,” she added.
According to ICRA, considering the development, the Reserve Bank of India (RBI) would delay its time for policy nominalisation.
“With the recent surge in Covid-19 cases and widening of restrictions leading to heightened uncertainty, it is increasingly unlikely that the MPC and RBI will commence with policy normalisation in February 2022 itself, unless inflation provides an acutely negative surprise,” she said.
“However, the likelihood of the latter is muted at this point,” she added.
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