With optimism and hope

It is with hope rather than trepidation that we enter 2022. Omicron rages, with about 17 lakh cases being reported daily worldwide and over five lakh in the US alone, but there is also a growing sense that this storm will not dictate events beyond the initial months of the new year. Apart from the fact that half the world’s population is fully vaccinated (with a wide gap between rich and poor countries, of course), Omicron has not proved threatening so far. The Centre for Disease Control and Prevention in Atlanta has downplayed its impact in terms of deaths and hospitalisations, while South Africa has announced that it would be easing curbs with the wave ebbing away there. India has reported over 16,000 cases on Friday, its highest daily tally in two months and presumably Omicron-driven. But by all reckoning, Omicron is less dangerous than the Delta variant. As Covid-19 hopefully morphs into a benign strain, it will cease to disrupt the economy in the years to come, with the world making mobility and digital adjustments.

But for now, as the Reserve Bank of India’s Financial Stability Report has observed, the impact of Omicron on the global economy cannot be wished away. It has impacted contact-intensive industries such as hotels, restaurants, travel and tourism. As the IMF has conceded, its October estimate of 4.9 per cent global growth in 2022 may have to be revised downwards. The global recovery expected in the first quarter of 2022 may be pushed back to the second, experts note. Meanwhile, monetary accommodation is coming to an end worldwide in the wake of supply-side inflation; this could hasten capital flows out of emerging market economies. While India’s macro fundamentals are robust, the RBI has flagged risks posed by cryptos and pro-cyclical private equity and venture capital funds.

The new year will see investments moving towards areas such as semi-conductors, renewables and EV technologies, as part of a Covid-induced new normal. Alternative supply chains that are less centred around China and its area of influence are being explored in these sunrise areas. India’s semi-conductor push is opportune in this context. The other focus areas of 2022 are likely to be regulation of digital giants, data protection and cryptocurrencies. The health of the Chinese economy, which is pursuing a ‘zero Covid’ policy that entails stringent lockdowns will be closely watched. China has slowed down following the Evergrande debt default and its knock-on effects on consumption and investment. Its clash with the US is also about acquiring strategic heft in the digital-electronic age. India too needs to play its cards carefully.

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