Ahead of release of first advance estimate of economic growth by the government, various economic research agencies have revised the estimate downward for current fiscal (2021-22 or FY 22) up to 10 basis points or bp (100 basis points mean 1 per cent).

Government’s Statistics office will come out with First Advance Estimate for FY’22 on Friday. This number is likely to give a sense on impact of second wave and possible impact of third wave of pandemic on the economy.

India Ratings & Research, (Ind-Ra), in its report on Thursday, estimated that spread of Omicron to reduce GDP growth by 10 bp in FY22. It said that 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.

“Ind-Ra believes this will have an adverse impact on 4QFY22 (January-March quarter) GDP. Ind-Ra’s estimate shows that GDP growth in 4QFY22 will now come in at 5.7 per cent year-on-year, which is 40bp lower than the agency’s earlier estimate of 6.1 per cent. For the entire FY’22, 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,” the report authored by agency’s Principal Economist Sunil Kumar Sinha said.

‘Impact limited to one quarter’

In her note, ICRA’s Chief Economist Aditi Nayar says their 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. 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 to our forecast of FY’2022 GDP expansion of 9 per cent,” she said.

Dovish stance likely

Further she mentioned that 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 itself, unless inflation provides an acutely negative surprise. However, the likelihood of the latter is muted at this point, she emphasised.

Ind-Ra’s Sinha, too, believes the RBI 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,” he said.

Most of the global agencies have estimated growth to be in the range of 9 to 10 per cent while RBI expects growth to be 9.5 per cent. However, RBI’s forecast is based on an assumption saying no resurgence in Covid-19 infections in India.

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