Economy: Omicron a ‘flash flood’ not wave, and economy can rebound, says RBI
Virendra Pandit
Mumbai: The Reserve Bank of India (RBI) has said the Omicron-led spike in coronavirus infection cases in the country may be “more of a flash flood than a wave”, and the Indian economy could rebound to pre-pandemic levels.
In its State of the Economy report, released on Monday as part of the RBI’s January bulletin, the central bank said: “The overall economic activity in India remains strong, with upbeat consumer and business confidence and upticks in several incoming high-frequency indicators.”
Recently, however, the infection surge because of the Omicron variant has temporarily dented the economic recovery to a large extent. “The recovery that has been underway in the Indian economy with the ebbing of the second wave of the pandemic is encountering headwinds from a rapid surge in infections in a third wave marked by the rapid transmissibility of the Omicron variant,” the report said.
It underlined that mobility indicators dropped below the baseline numbers as daily Covid-19 infections soared to over 271,000 on January 13, the highest since mid-May 2021, with the active caseload hitting 1.5 million.
However, aggregate demand conditions remained resilient. Issuing e-way bills surged to 72 million in December, the second-highest in its history, showing “the likelihood of a robust collection of goods and services tax (GST) in January 2022”.
“With a strong pickup in manufacturing and construction, highway toll collections soared by 16 percent month-on-month (m-o-m) in December. Power consumption rose by 4.5 percent to 110.3 billion units in December,” it said.
Data from the Centre for Monitoring Indian Economy (CMIE) suggested that the labor participation rate turned up to 40.9 percent in December, the highest since September 2020. The employment rate also improved by 23 basis points, though the unemployment rate worsened to 7.9 percent in December from 7.0 percent a month ago.
The RBI report observed that export growth was also broad-based, and 10 major commodity groups recorded an expansion above their pre-Covid levels. Inflation, meanwhile, rose because of unfavorable base effects between November and December.
“Monetary and credit conditions are improving, with bank credit picking up in a gradual but sustained manner. India’s digital payment ecosystem is also expanding rapidly,” it said.
However, the RBI report noted that the global outlook “remains clouded by considerable uncertainty,” as inflation continues to mount across geographies amidst disruptions in production, supply chains, and transportation.
“There are indications that supply chain disruptions and shipping costs are slowly easing, although the waning of inflation may take longer. This provides a window of opportunity to focus all energies on accelerating and broadening the global recovery,” it said.
