Omicron Impact: ‘Some loss’ in economic activity momentum, says RBI Guv

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Covid’s ongoing third wave has led to “some loss of momentum in economic activity” which has been reflected in high frequency indicators, Reserve Bank of India (RBI) Shaktikanta Das said on Thursday.

He also pointed out that demand for contact-intensive services is still muted.

In his policy statement post the Monetary Policy Committee’s bi-monthly meeting, Das said: “The MPC flagged the potential downside risks to economic activity from the highly contagious Omicron variant. Reassuringly, the symptoms have remained relatively mild and the pace of infections is moderating as quickly as it surged.

“There is, however, some loss of momentum in economic activity as reflected in high frequency indicators such as purchasing managers’ indices for both manufacturing and services, finished steel consumption and sales of tractors, two-wheelers and passenger vehicles.”

Going forward, he said that positive impulses for quickening the pace of recovery emanate from buoyant ‘Rabi’ prospects, robust export demand, accommodative monetary and liquidity conditions, improving credit offtake, and the continued push on capital expenditure and infrastructure in the Union Budget 2022-23.

Furthermore, Das said that India’s GDP is expected to grow at 7.8 per cent in FY2022-23.

Accordingly, the real GDP growth is projected at 17.2 per cent in Q1FY23, at 7 per cent in Q2, at 4.3 per cent in Q3 and Q4 at 4.5 per cent.

“In India, real GDP growth at 9.2 per cent for 2021-22 takes it modestly above the level of GDP in 2019-20. Private consumption, the mainstay of domestic demand, continues to trail its pre-pandemic level,” he said.

“The persistent increase in international commodity prices, surge in volatility of global financial markets and global supply bottlenecks can exacerbate risks to the outlook.”

In addition, Das said that going forward, the government’s thrust on capital expenditure and exports are expected to enhance productive capacity and strengthen aggregate demand.

“This would also crowd in private investment. The conducive financial conditions engendered by the RBI’s policy actions will provide impetus to investment activity.”

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